Go Lean Commentary
Those who refuse to learn from history are condemned to repeat it – Dire warning from all High School History Teachers.
The purpose of this commentary is not a lesson in history but rather a navigational guide for managing the change process. Other lands in the Caribbean have previously introduced Value Added Taxes (VAT) and/or Sales Taxes and learned bitter lessons; that the public shifts to the Informal Economy or Black Market. In particular, this was a hard lesson learned in Puerto Rico…
The Bahamas now attempts a VAT implemetation; it is feared that this country too, may barrel towards the Informal Economy/Black Market. See article here:
Title: PM says ‘We were right on VAT’ (Excerpt Only)
Subtitle: Christie Addressed nation on VAT, crime, immigration and economy
By: Royston Jones, Jr., Staff Reporter
Prime Minister Perry Christie yesterday assured Bahamians that despite what will be “the inevitable growing pains that always attend the early days of important changes, the Bahamian people will see that we were right to introduce VAT (value-added tax) and do it when we did”.
Calling the controversial implementation of VAT on January 1 the “single most fundamental change to our public revenue system in the modern history of The Bahamas”, the prime minister used his New Year’s Day address to the nation to point out that while crime, unemployment and underemployment remain pressing challenges for The Bahamas, his administration has made what he termed “commendable progress in tackling a number of pressing issues”.
Focusing primarily on VAT, Christie said he viewed the new tax as a “necessary improvement”.
“It may not be the most popular move for a government to make but it is an absolutely necessary one,” Christie said. “We were right because VAT is going to expand the revenue base in a way that will enable the government to better meet the social and infrastructural needs of the Bahamian people, now and well into the future.
“Our obligations to build hospitals and clinics; to build schools and community development facilities; to provide critical funding support for our electricity, water and sewerage infrastructure; to provide relief to the elderly and indigent in our communities; to meet the costs of Family Island development; and to meet the costs of our public service bureaucracy – these obligations could simply not be met out of our traditional sources of public revenue any longer.
“VAT, therefore, is a necessary improvement and one that is destined, I am convinced, to bring brighter skies and clearer days for our country and its finances.”
The prime minister also focused on immigration reform …
Christie also promised a renewed focus on crime in the New Year …
With regard to the economy, Christie said 2015 will see major advances. “The multi-billion dollar Baha Mar project …”
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Other related local news articles reporting the challenges of VAT in this country:
VAT Price Hikes Fears Heightened
Mixed Reviews from Shoppers after VAT Implementation
Pain, confusion on VAT roll-out; Not yet applied on Gasoline
VAT Registration Process Simplified
No VAT On Tourism-specific transactions
Hotels Brace For 150% Vat Tax Burden Rise
White Paper: The Economic Consequences of the Value-Added – Market Response
White Paper: A Valued Add Tax Within A Reformed Tax System – Official Government Publication
There are advanced lessons here for the Bahamas and all the Caribbean to learn.
The book Go Lean … Caribbean made an assessment of Puerto Rico and reported that much of that country’s spending is conducted in the Informal Economy/Black Market (Page 18). This is bad! There is a Social Contract between governments and their constituents. People need their government and governments need people … and their legitimate spending. With an informal economy (i.e. “under the table” retail transactions and bartering) much of the government’s deliverables are handicapped as governmental agencies do not get the needed revenues.
This issue is among the primary focus of the book, serving as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU). The following 3 prime directives are explored in full details:
- Optimization of the economic engines in order to grow the regional economy to $800 Billion & create 2.2 million new jobs.
- Establishment of a security apparatus to protect the resultant economic engines.
- Improve Caribbean governance to support these engines.
As a planning tool, the Go Lean roadmap accepts the challenge to adapt for societal empowerments, such as tax regime changes. This point was pronounced in the opening Declaration of Interdependence (Page 12), with this statement as follows:
xiv. Whereas government services cannot be delivered without the appropriate funding mechanisms, “new guards” must be incorporated to assess, accrue, calculate and collect revenues, fees and other income sources for the Federation and member-states. The Federation can spur government revenues directly through cross-border services and indirectly by fostering industries and economic activities not possible without this Union.
The foregoing news articles highlight the issue of VAT implementation in the Bahamas. This government, and the people, are struggling with this roll-out – this change is hard and everyone is affected; see VIDEOs below. This issue had previously been addressed in Go Lean blogs:
| CARICOM calls for innovative ideas to finance SIDS development |
| Bahamas Planning to Introduce 7.5 Percent VAT in 2015 |
The issues of government revenue reform, operational processing, and best practices for delivery are critical for the Caribbean region and for the CU to master. VAT is very much related, as it already applies in Barbados (17.5 percent), Guyana (16 percent) Saint Kitts & Nevis (17 percent) and Trinidad & Tobago (15 percent).
The Go Lean strategy is to confederate all the 30 member-states of the Caribbean, despite their language and legacy, into an integrated “single market”. Tactically, this will allow a separation-of-powers between the member-states governments and federal agencies, allowing for efficient economies-of-scale for revenue collection systems, processes and people. In total, the Go Lean book details a series of community ethos, plus strategies, tactics, implementations and advocacies to deliver better revenue solutions:
| Anecdote Puerto Rico – The Greece of the Caribbean | Page 18 |
| Community Ethos – All Choices Involve Costs | Page 21 |
| Community Ethos – People Respond to Incentives in Predictable Ways | Page 21 |
| Community Ethos – Economic Systems Influence Individual Choices | Page 21 |
| Community Ethos – The Consequences of Choices Lie in the Future | Page 21 |
| Community Ethos – Lean Operations | Page 24 |
| Community Ethos – Cooperatives | Page 25 |
| Community Ethos – Ways to Improve Sharing | Page 35 |
| Strategic – Vision – Integrated region in a Single Market | Page 45 |
| Strategic – Vision – Agents of Change – Globalization | Page 57 |
| Tactical – Confederating a Non-sovereign Union | Page 63 |
| Tactical – Fostering a Technocracy | Page 64 |
| Tactical – Growing to $800 Billion – Trade & Globalization | Page 70 |
| Tactical – Separation of Powers – Union Revenue Administration | Page 74 |
| Anecdote – “Lean” in Government | Page 93 |
| Implementation – Ways to Pay for Change | Page 101 |
| Implementation – Ways to Deliver | Page 109 |
| Implementation – Ways to Better Manage Debt | Page 114 |
| Implementation – Ways to Benefit from Globalization – Reform Tax Systems | Page 119 |
| Advocacy – Ways to Grow the Economy | Page 151 |
| Advocacy – Ways to Ways to Mitigate Black Markets | Page 165 |
| Advocacy – Ways to Improve Governance | Page 168 |
| Advocacy – Ways to Improve Local Governments | Page 169 |
| Advocacy – Ways to Better Manage the Social Contract | Page 170 |
| Advocacy – Revenue Sources for Administration | Page 172 |
| Advocacy – Ways to Foster Cooperatives | Page 176 |
| Advocacy – Ways to Foster e-Commerce | Page 198 |
The introduction of new taxes is a heavy-lifting activity. For every action, there will be reaction, consequences and repercussions. This commentary hereby warns the Bahamas tax planners regarding the emergence of Black Markets, as was experienced in other states, like Puerto Rico. The Go Lean book provides the remediation and mitigation plans for Black Markets (Page 165).
This process of implementing a new tax regime is a complex one. There are a lot of fears associated with the implementation, as this strategy can be counter-productive – one step forward, two steps backwards; (one Economic Impact Study predicts VAT adoption will lead to a $165 million decline in government revenues). An identified frightened scenario stems from a competition analysis with other tourism-based economies in the Caribbean that do not charge VAT taxes on the revenue of the wholesale tour operators/industrial-players. This is bad! This point was echoed by Mr. Stuart Bowe, the Bahamas Hotel and Tourism Association’s (BHTA) president with these words: ”… [tax regime] change “would have resulted in overseas wholesalers, tour operators, travel agencies and online travel agencies steering business away from the Bahamas“. The current VAT-assessing countries trail the Bahamas in tourism numbers – by far.
The publishers of the Go Lean book calls on the Government of the Bahamas to engage a Plan-Do-Review approach for VAT implementation:
1. Apply best-practices.
2. Be nimble and technocratic so as to adapt to new realities bred from this new tax regime.
3. Your goal should be a net gain of 15% more revenues (in the first year) compared to the old tax regime.
4. Be prepared to disband strategies and tactics that do not work as hoped.
5. Immediately adopt e-Government and e-Payment schemes.
6. Look out for the Black Market encroachment.
VAT should be more about the future than it is about the present. So the most important consideration should be that something better is on the way! This is also the thrust of the Go Lean/CU roadmap.
Now is the time for the Bahamas, and all of the Caribbean – the people and governing institutions – to lean-in for the empowerments described in the book Go Lean … Caribbean. The local governments need this comprehensive roadmap; they need their revenues. They are part of the eco-system to elevate Caribbean life, culture and systems of commerce.
Download the free e-Book of Go Lean … Caribbean – now!
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Photo: Sample Receipt with VAT applied
VIDEO # 1: http://youtu.be/SsgKkp2Dpxg – One Bahamian Man’s Random Thoughts on VAT
VIDEO # 2 – http://youtu.be/Qzzxq1mBbF4 – Economist – Is VAT Good for The Bahamas?
At Fidelity Bank’s Cayman Economic Outlook, Feb 2014, with author, economist, and professor at George Mason University, Tyler Cowen.