New Zealand Experience Shows Tourism Sector Need Not Fear VAT

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Despite fears that tourists would abandon New Zealand and flock to Australia after value-added tax (VAT) was implemented in New Zealand, it did not happen, and VAT specialists from New Zealand have argued The Bahamas need not fear a loss of competitiveness either.
In fact, they suggested that the possibility of sharing the nation’s tax burden with a larger group of people than those who live in the country is something New Zealand “quite likes”, as it allows a greater spreading of the government’s tax demands beyond the nation’s population of 4.4 million.

John Shewan and Don Brash, who both played key roles as private sector representatives in New Zealand’s VAT implementation process in 1986, suggested that concerns about the tax’s impact on price competitiveness can be overplayed.

Shewan, a former chairman of PricewaterhouseCoopers (New Zealand), and a well-respected figure in the private sector in that country, told Guardian Business, “Clearly, there was a concern that there might be a dip in tourists arriving, but the numbers show there was a continued increase in tourists coming. So there is some price insensitivity, but it must not be overstated.”

Brash, a leading businessman, said, “Our VAT came in years before the Australian VAT came in, and the New Zealand tourist industry was worried that if they had a VAT and the Aussies did not, people would go to Australia and not New Zealand. It didn’t happen.”

Shewan said that tourists have continued to be “quite comfortable” paying VAT in New Zealand.

“Generally, I think that’s because just about wherever you go these days, as a tourist, there’s going to be VAT or an equivalent, and, indeed, in Europe generally you’re suffering 20 or 22 percent. So there’s very few countries where you don’t have a VAT,” he said.

“When I was last in Miami, I got my dinner bill; it had gratuity already added of 22 percent, then they added the state sales tax, and then they asked for a voluntary gratuity. At the end of the day, there are a series of a trade-offs, and, based on our experience, I’m not convinced it would have a huge negative impact if it’s at a reasonable rate.”

The two men were in The Bahamas until today to review the country’s preparedness for VAT, the proposed legislation and to share the experiences they have had in New Zealand with the introduction of VAT, in order to assist the government with its tax reform initiative.

Shewan said that, while he sees a July 1 implementation date as “extremely challenging”, the experience in New Zealand has proven VAT to be a “simple and efficient” form of taxation.

The Bahamas Hotel and Tourism Association, which represents many different types of tourism service providers in The Bahamas, has been among those which have come out against VAT as presently proposed. Its concerns are primarily that the tax, if charged at 10 percent on hotels and 15 percent elsewhere, would increase prices for visitors coming to The Bahamas to a point that would make the country uncompetitive in the tourism sector, given that prices are already significantly higher than those in regional competitor destinations.

Frank Comito, former BHTA executive vice president and now a consultant to the BHTA, has argued that The Bahamas is on a “price precipice” and stands to lose a significant share of the market if prices rise by just a small amount.

The BHTA and other tourism stakeholders have commissioned a study by Ernst and Young (Bahamas) to look into the possible impact of the tax on the tourism sector, and potential alternatives for revenue raising. The study is due shortly.

Alison Lowe
The Nassau Guardian
Published April 29, 2014