With the business community and taxpayer still trying to adjust to VAT at 7.5% will the government increase it tomorrow?
The government's new budget set to be announced tomorrow and speculation is rife that the pernicious Value Added Tax (VAT) will be increased.
When introduced VAT was touted as the way to get government spending, deficits and debts in order, yet we've seen exactly the opposite.
There is no doubt the government did not expect such massive increases in revenue with VAT and now that it is implemented, ratcheting it up at budget time is the tax authority's dream come true.
As Daniel Mitchell pointed out in 2011 VAT is "akin pouring gasoline on a fire" that "would exacerbate rather than solve the problem of too much government borrowing".
To paraphrase Dr. Mitchell; Enacting a value-added tax was a costly mistake for Bahamian consumers and workers. The VAT would prove irresistible to politicians eagerly looking for money to pay for new programs. The VAT would also undermine entitlement reform because politicians could gradually increase the tax to finance promised benefits.
And continuing to paraphrase here; The tax rate would doubtlessly climb, financing a surge of new government spending. The result would be a stagnating economy, higher budget deficits, and fewer jobs for Bahamian workers. The value-added tax has simply be another burden on an already overtaxed economy.
We will be privy to the direction the government has chosen to go with this in just a few hours.
References:
The Case against the Value-Added Tax...
The VAT: Not Just Another Tax...
The Economic Consequences of Value Added Tax for The Bahamas (pdf)...
