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VAT consultant: 17 percent ‘across-the-board’ duty decrease

Duty reduction to offset VAT impact on cost of goods
Guardian Business Editor

Published: Oct 01, 2013

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The government is planning an “across-the-board” reduction of 17 percent in customs duties and excise taxes on all goods, which currently experience import taxes of above 15 percent, in order to offset the impact of the introduction of value added tax.

Ishmael Lightbourne, consultant to the government on VAT, said that the 17 percent figure will account for the fact that VAT is to be calculated on the price of goods including duty.

“It has to be a little more than 15 percent because the way that VAT is presently calculated, it’s calculated on duty as well so in order to compensate for that incremental effect, we will need to reduce it by 17 percent,” he said.

Lightbourne clarified that a reduction of duty “by” 15 percent will mean a full 15 basis points subtracted from the overall duty rate, as opposed to a 15 percent reduction in the duty rate itself.

This will mean that rather than a 45 percent duty rate falling to 38.25 percent, it would fall to 30 percent.

Lightbourne admitted that one area which the government is “still struggling with” at present is what would happen to the duty rates on items which currently have duty of less than 15 percent applied to them.

In this case, were duty removed and VAT applied, the taxation rate would rise above the duty rate which was initially imposed.

“We’re struggling with those now – what happens to those items below 15 percent duty. They certainly will be reduced to zero. If you applied 15 percent VAT to those items it would be an increase in cost, so that is not yet finally decided on,” the consultant said.

Lightbourne said that the public must be clear that duty reductions will be applied at exactly the same time as VAT is implemented – July 1, 2014.

“I thought it was always clear that it would be simultaneously reduced, but people have been asking questions so it needs to be stressed,” he said.

His comments should provide some reassurance to service providers such as Bahamas Contractors Association President Godfrey Forbes, who yesterday told Guardian Business that he fears a significant inflationary effect from VAT on

construction pricing if duty rates are not reduced enough.

Forbes, who attended a luncheon in which Lightbourne spoke last week, said that he was under the impression that the consultant was advising that the reduction would be equivalent to 15 percent of the rate itself.

In the case of the average tariff rate of 45 percent on construction materials, Forbes said that this would see the industry continue to pay around 38.75 percent in duty. When charging 15 percent in VAT on top of this, Forbes said prices would have to climb for consumers.

“These are the things we are concerned about because at the end of the day with construction just trying to rebound right now (the introduction of VAT) will go ahead and further depress the construction industry and we could be looking at a rough ride going forward.”

He called for “clarity” over the tariff rates that would be applied under the VAT regime.

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