Thompson: PLP Proposed VAT Reduction Will Destabilize Economy

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Minister of State for Finance Kwasi Thompson is hitting back at PLP Chairman Chester Cooper, asserting that Cooper’s claim to reduce Value Added Tax, if elected, is “rank populist politicking.”

Thompson said to reduce VAT when the Bahamas is has been hit with an economic falloff will cause the Bahamas to lose more than $100 million.

Why it matters

Cooper unveiled his party’s economic plan on Sunday stating that the PLP will reduce VAT to 10 percent for one year then review the rate after the year is expired.

The big picture

7.5 percent VAT was implemented by the PLP in 2015, after reconsidering its original proposal of 15 percent. The PLP’s reasoning has been that the introduction of a VAT system will increase government revenue at a time when it was declining.

Then State Minister for Finance Michael Halkitis said it was a “needed reform” to “protect the economy.”

When the Free National Movement came to power, it increased VAT to 12 percent but removed the tax from breadbasket items.

Thompson says the proposed reduction will destabilize the economy

“The Opposition’s plan would lead to a dramatic fall-off in revenue likely in excess of $100 million during their proposed 12 month period, at a time when the country’s fiscal resources are under tremendous strain and the needs for government to support social and economic programmes are even more pronounced.

“The Government cannot operate by trial and error. The 12 month period will only destabilize the economy causing the PLP to have no choice but to return VAT to 12% the following year or increasing to 15%. The country needs stability and consistency.”

“A 2% cut in VAT does not guarantee that additional spending needed and will not be sufficient to achieve the amount of economic activity to replace the loss in revenue. It would be impossible for the Government to maintain its spending levels with that level of loss in revenue. It is completely irresponsible.”

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