The idea of a value-added tax (VAT) has been around in the Ministry of Finance for some time. During the last Free National Movement (FNM) administration, significant work was done to advance it. However, no final decision was made on VAT by the FNM and brought to the people before the party lost power in the 2012 general election.
Perry Christie's new administration carried on with VAT after winning that vote. It has become the savior to the governing party. The government was facing half-billion dollar deficits and rising debt-to-GDP ratios. It needed a means to close the gap, and VAT at 15 percent on July 1 was the original choice of the Progressive Liberal Party (PLP) to do just that.
The PLP now says VAT will be lower and it will not start on July 1. Christie, who serves as prime minister and finance minister, has not indicated what he will do on tax reform or when he will do it. He has said he is waiting on the report commissioned by the business community.
Yesterday the study from the Coalition for Responsible Taxation was released. Global forecasting and quantitative analysis firm Oxford Economics compiled the report for the coalition. The coalition will now give the government further recommendations in the next few days based on Oxford Economics' comprehensive report.
We recommended that the full report be read by Christie, since he is the one who will make the final decision on this important matter. This issue is too important for the prime minister and minister of finance to say he has had his advisors read it and is taking advice from them.
Once Christie reads the report, he needs to then consider the significance of the moment for his people. Preliminary figures released by the Department of Statistics have provided evidence of a significant economic slowdown last year, showing that real growth in GDP missed earlier projections and fell to just under 0.7 percent in 2013. And, unemployment in The Bahamas is at 15.4 percent.
Yes we have serious debt issues. But in this economic climate Christie has to decide if it is wise to raise taxes on his people.
Among the report's key findings is that introducing VAT at a rate of 15 percent or 10 percent with a broad range of exemptions will result in inflation of over 6.5 percent in the first year VAT is introduced. The wrong decision on tax reform could send The Bahamas back into recession considering the very modest growth in 2013.
When Christie speaks of tax reform, he seems not to grasp the seriousness of what he proposes. In addition to the VAT tax hike, he wants to increase taxes further in 2016 by introducing National Health Insurance (NHI). The means to fund this dream, based on the bill passed under the last Christie administration, is a payroll tax. With VAT and NHI taxes in effect, Christie will empty the pockets of his people.
It is time for the prime minister to chart the way forward on tax reform. But in doing so he must accept that his people are in a fragile position. Many can't keep their lights on. The homes of many have been repossessed - so many that problems have emerged in the banking system.
A wise tax reform plan would significantly cut back wasteful government spending, enhance the efficiency of the tax collection process and reasonably expand the tax base to ensure all sectors of the economy are paying their way toward our common needs.
Most Bahamians agree that tax reform is necessary. However, few think massive tax increases will help us. Christie should know that these decisions on taxes are among the most serious moves he will make in his political career. We hope he does not break the backs of the Bahamian people listening to bad advice or chasing fantasies his country cannot afford.

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