SLASHED: VAT on food items reduced to 5%, effective April 1st

NASSAU, BAHAMAS – Prime Minister Philip Davis has announced that effective April 1st, the Value Added Tax (VAT) rate on all food sold in stores will be reduced from 10 percent to 5 percent, a 50 percent reduction he says is now possible due to the economy being on a stable and secure footing.

“Now that we have put the economy onto a stable, secure footing, we are able to ease the VAT rate to provide financial relief,” Davis stated. “Beginning April 1st, the rate will be cut in half from 10 percent to 5 percent. This new 5 percent rate will apply to all food in food stores, including fresh fruits and vegetables, baby food, lunch snacks, and frozen foods. However, it will not apply to prepared foods in the deli,” Davis said during a national address at the University of The Bahamas on Wednesday night.

Davis noted that the rate reduction will also apply to the importation of all food items, and the effective date of April 1st will give merchants and food stores time to make the necessary adjustments.

The Opposition has strongly and repeatedly criticized the Davis administration for making the cost of living hard for struggling Bahamians over its decision not to remove VAT on breadbasket items, as done under the former Minnis administration, a move Economic Affairs Minister Michael Halkitis had previously indicated was “not feasible.”

Reflecting on the state of the country’s economy just over three years ago, Davis said: “Just a little more than three years ago, our economy was in shambles. Our nation’s finances were in freefall, and our hospitals, our schools, and our communities were in deep crisis.”

He emphasized his administration’s efforts in pulling the country back from the fiscal brink. “We fought to get our country removed from the blacklist. We brought back old jobs, and we created new ones. And Bahamians embraced the opportunities generated, as employees, entrepreneurs, and innovators. Despite the good economic news, and even though the unemployment rate is the lowest since 2008, far too many Bahamians are still struggling,” Davis acknowledged.

He cited the high cost of living as one of the country’s most stubborn problems. “The high cost of living is a major source of hardship and frustration,” he added. Davis explained that VAT is not the cause of the high price of food, but for those with the tightest disposable income, reducing VAT by 50 percent will make a difference. “This reduction will not impact the government’s fiscal targets for this year,” he pledged.

“You will remember how bleak things looked in the summer of 2021 – with all the talk of downgrades, currency devaluation, and tax hikes. In fact, some recommended at the time that our country raise VAT, from 12 percent to 15 percent, to bring it in line with our regional neighbors – because we have the lowest VAT in the region. But we thought asking Bahamians, just gaining freedom from curfews and lockdowns, to pay more VAT on absolutely everything – across the board – would cause real hardship and slow our economic recovery.

“So instead, we lowered VAT, from 12 percent to 10 percent. Instead of going up to 15, as recommended, we went down to 10. Since that time, we’ve worked really hard to improve our nation’s finances. Now that we have put the economy onto a stable, secure footing, we are able to ease the VAT rate to provide financial relief,” said Prime Minister Davis.

The Prime Minister also highlighted his administration’s efforts to lower the cost of energy, improve the country’s energy infrastructure, and provide affordable housing and healthcare. “Because of our remarkable economic recovery, our GDP has grown by 31.4 percent. And we reduced our deficit from 13.1 percent to 1.3 percent — in three years, we knocked more than one billion dollars off our deficit,” said Prime Minister Davis.

He noted that one of the biggest reasons for the high cost of living in The Bahamas is a lack of competition. “When competition is weak, or if companies have a monopoly in a certain market, businesses can charge whatever they like. When there’s competition, customers have more choices. They have more choices about where to shop and what to buy. Competitors can offer cheaper prices to entice customers, and businesses soon realize that the way to succeed is by becoming more competitive. In order to strengthen competition, we will shortly be engaging in a consultative period prior to introducing legislation to prohibit anti-competitive practices.”

He added: “By promoting competition, the legislation will seek to enhance consumer welfare and protection through lower prices, remove unfair trading practices, and secure better products and services and a wide range of choices at the best possible prices. In order to help Bahamians shop around to find the best prices, we are also launching a new ‘Price Comparison App’ to help consumers easily compare prices between retailers.

“The app will initially focus on the food sector but is planned to extend across a number of sectors. On the current timetable, we expect to have the app up and running by the end of the first quarter of 2025. When people have more information, they can make the choices that suit them best. And when people have more choices, they can in turn make decisions that are right for them and their families.”

Prime Minister Davis also mentioned the government’s move toward fully implementing its ‘Trade Diversification Policy.’

Prime Minister Davis noted that up to 90 percent of goods consumed in The Bahamas are imported, and 85 percent of those are from the United States. He further noted that historically, The Bahamas has relied heavily on a limited number of trading partners.

“While these relationships have served us well, the global market is constantly evolving. In the same way that we wish to promote wider choice among retailers, we wish to offer a wider choice of places from which we source our products. By diversifying the places from where we source our products, we not only reduce risks associated with supply chain disruptions, but we can also cut costs associated with unnecessary middlemen,” he said.

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