Bahamian Prime Minister Dr Hubert Minnis revealed yesterday that the government considered raising value-added tax from 7.5% to 15%and also considered raising it to 10%, but determined in the end, that 12% would be reasonable to meet its fiscal targets.
In wrapping up the budget debate in the House of AssemblyMinnis said, “We would have looked at 10% and the result was still not good for future generations. We looked at 15%. That was not an option. It was too much pain for anyone to burden. We looked at 12% and we realized there would be some challenges even with 12%, but we know how to overcome those challenges, and therefore we had to increase to 12%so as to protect future generations.” The increase in VAT is expected to generate an additional $400 million. The government also said the core components of its fiscal strategy involves enhancing revenue collection and, over time, implementing reductions in customs and excise duties to “rebalance the tax burden between the provisions of goods and services and reduce the attendant distortionary impacts”.The government expects to “substantially” complete the payment of arrears in three years. In Parliament, the prime minister recognized these are tough targets and the timeline is challenging.He said, however, that his administration has reduced the deficit by approximately $351 million over the previous year, and remains committed to reducing the burden of debt to a maximum of 50% of GDP – in line with its fiscal responsibility legislation. The economy grew by 1.4% last year, and it’s projected to grow by 2.5% in 2018.Minnis said that momentum should mitigate the impact of the tax increase to some extent.
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