By NEIL HARTNELL
Tribune Business Editor
Eliminating VAT on services in the Dorian-hit islands would be difficult to police and too costly, the deputy prime minister said yesterday, while granting tax breaks to companies that do not need them.
K Peter Turnquest, pictured, explaining the government’s rationale for maintaining VAT on services in its newly-established Economic Recovery Zones, told Tribune Business that “we’d love to do more” but there is still a public sector with multi-billion funding needs.
Singling out construction labour, in particular, as an area where the government would have liked to provide concessions, Mr Turnquest said it needed to “be reasonable” because the Public Treasury stands to lose “significant” revenues through the tax breaks already granted.
Confirming that the Minnis administration is trying to achieve a delicate balance between facilitating post-Dorian recovery and The Bahamas’ fiscal health, he added that the government was hoping to beat its revised $677.5m deficit target and ensure public spending “doesn’t get out of control” such that it stores up even greater long-term problems for the country.
While the government has been urged to “revisit” its decision to exclude services from the Recovery Zone VAT breaks, Mr Turnquest countered by suggesting it would be virtually impossible to prevent evasion, fraud and other forms of tax crime if such a concession were granted. He added that wealthy businesses, which had no need of such relief, would also benefit alongside those that do.
“One, because it is difficult to control,” Mr Turnquest told Tribune Business of the government’s thinking in declining to provide the Bahamian economy’s dominant services sector with a VAT break.
“Second, if we do that, we would be giving wide-ranging concessions to businesses that don’t really need it; hotels, Freeport’s industrial sector, and all those various entities that provide services. Remember, the concessions are intended to help with the reconstruction effort. We are giving concessions on items people have to replace.
“In addition, this is a significant cost to the Government, and we still have a government to run which has to be funded,” the deputy prime minister continued. ‘We’ve done the best we can. We’d love to do more, particularly as it relates to construction labour.
“We’d love to do more, but we have to be reasonable. It is significant, that’s all I’m prepared to say at the moment. It’s very significant.”
Ken Hutton, the Abaco Chamber of Commerce’s president, had last week told Tribune Business that the Government was in danger of leaving the post-Dorian recovery effort “half finished” by failing to eliminate VAT on services as well as physical goods imports.
Calling for a rethink, he said such a policy would continue to levy 12 percent VAT on contractor bills and those of other repair professionals, inclusive of labour costs, while at the same time leaving all construction materials tax-free.
Calling for services to be treated as VAT-free for the recovery zones’ full seven-month duration, the Abaco Chamber chief said: “In a tourist-centred or service-centred economy like Abaco, it’s one thing to rebuild but it’s another thing to earn a living here.
“Services is definitely one of the things - everything from construction to restaurants and taxis. We need to have a little bit of breathing room for the interim; the same period of time. It’s also going to affect things like insurance bills and medical bills.
“You may save VAT and duty on the construction materials, but you don’t save it on the intermediaries. I think it’s important. We need a little bit of breathing room to get this place back up and running. Having it solely for the materials and not the services is really job half finished.”
Mr Turnquest, though, argued yesterday that the mixture of VAT, duty, Excise and real property tax breaks will “be of tremendous benefit and value” to Grand Bahama and Abaco residents in their post-Dorian rebuilding efforts.
Asked how many homeowners and businesses are likely to benefit, he replied: “It remains to be seen. I couldn’t say at this point how many people are able to benefit from the tax concessions because it all depends on timing; the receipt of insurance payments and being able to take advantage of the concessions.
“It’s difficult to predict a number, but we anticipate it will be a tremendous benefit and value to those Bahamians able to find the resources to do reconstruction and repairs.”
The deputy prime minister added that the Government still had programmes aimed at “providing direct assistance” to homeowners in the Category Five storm’s aftermath, and reiterated: “There’s only so much we can do with the resources we have.”
Having projected a $137m deficit for the 2019-2020 fiscal year, which would have kept the Government in line with the 1 percent of gross domestic product (GDP) benchmark set by the Fiscal Responsibility Act, the Minnis administration is projecting it will now have to seek parliamentary approval for an extra $508m in borrowing post-Dorian.
This is to cover the $677.5m deficit now forecast from a combination of revenue losses and increased spending in the Category Five storm’s aftermath. The Government’s recently-released Fiscal Strategy Report projects it will have to borrow almost $1.15bn over the next two fiscal years, with the national debt set to hit almost $9.5bn by 2024-2025.
Mr Turnquest, though, affirmed that the Government was seeking to beat its own deficit forecasts. “We’re working hard to do that,” he told Tribune Business. “The idea is to manage it as prudently as we can without stifling the recovery and the economy.
“We recognise this is extraordinary, and will try to control the expenditure as best we can to ensure it doesn’t get out of control and creates longer-term disruption. I think we’ve put forward a credible plan, and we hope everybody buys into the vision of were we’re trying to do. We’ll see where the results go from that.”