Breadbasket items, medication, medical services and insurance subject to new 10% VAT rate
Halkitis: Going back to 12% is off the table
NASSAU, BAHAMAS — The government’s proposed value-added tax (VAT) reduction from 12 percent to 10 percent as of January 1, 2022, will save the Bahamian people money, despite the tax being implemented on previously zero-rated items and services, according to Minister of Economic Affairs Michael Halkitis.
The minister said while VAT remains a sensitive topic, studies show that one rate with minimal exemptions is easier to administer and reduces collection issues.
“It is not a decision that is taken lightly but we believe it is the right decision,” he said.
“Having said that, overall, you are reducing the rate from 12 to 10, so everything else that you spend money on, instead of paying 12 percent VAT, you’re now paying 10, so that’s a reduction.
“The Department of Statistics, they do a survey called the Household Expenditure Survey and they say the people at the lowest income level spend about 25 percent of their spending…on food.
“So, 75 percent goes on something else, and so, the 75 percent that goes on something else that is vatable, they’re going down from 12 to 10.
“From the items that were on — the breadbasket items and others [that] were the zero-rated, now there will be a 10 percent VAT.
“What we’re saying is we understand it is an emotional issue and we know that it gets to be a very hot political issue, but our job is to do what we think is the best interest of the country.”
While the Progressive Liberal Party (PLP) had committed to the tax reduction for a year, Halkitis made clear yesterday that returning to 12 percent is off the table.
He said the government is optimistic that with efforts to better collect taxes, and savings realized from the reduction converting into additional spending, the economy could see additional domestic stimuli.
According to the supplemental budget, the government expects to yield an additional $92 million in revenue.
In the revenue summary, revenue from VAT is expected to increase by $67.5 million, from $926 million in this fiscal period compared to $993.5 million in the next.
VAT was first introduced under the Christie administration at 7.5 percent.
Asked about returning to that rate, which Halkitis has said worked well, the minister said yesterday that he was unable to speak to that.
As to expanding the price control items, Halkitis said there were no plans to move in that direction.
He said there was some discussion to include fresh fruit and other healthy items, but there was a concern about “telling businesses how to price” when the ultimate goal was to protect the most vulnerable.
The minister also advised that the government undertook modeling of VAT scenarios to determine the best approach.
He said that information will be tabled for the public to gauge.
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