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Bahamas Chamber of Commerce and Employers Confederation Coalition for Responsible Taxation‏
Apr 17, 2014 - 1:58:16 PM

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Nassau, Bahamas - The debate over whether or not Value Added Tax (VAT) is an appropriate tax for the Commonwealth of The Bahamas at this current time, and whether or not there are viable alternatives, continues. A debate can take two (2) basic forms – seek to demonstrate the merits of your argument against those with an alternate view, or seek to discredit the alternate view without substantive arguments in favour of your argument. The citizens of The Bahamas now, more than ever, require clarity in the discourse over fiscal reform and tax reform, and the debate should take the former form of debate; there is no benefit to discrediting alternate views, when a simple presentation of analyses performed would demonstrate the superiority of one alternative over another.

The Coalition has stated repeatedly, and continues to abide by the philosophy, that the proposals and recommendations that it submits will be based on professional analyses and empirical evidence. Accordingly, while the Coalition has submitted a number of possible tax and fiscal reform alternatives to the Government, it is awaiting the results of the dynamic economic modelling being performed by Oxford Economics before finalising its recommendations.

A number of comments have been made in relation to payroll tax, which is only one (1) alternative proposed by the Coalition. Payroll tax is part of the dynamic economic modelling, but was not recommended as the sole solution to our fiscal crises. There are some matters that require clarification by the Coalition:

  •     payroll tax is not proposed as the comprehensive solution, but is expected to be an easily administered form of taxation that can be implemented quickly and efficiently in the short term, providing the necessary headroom in timelines to devise a comprehensive fiscal reform plan, which is palatable to the citizenry.

  •     the proposed payroll tax was not intended to make up for any shortfall from proposed reductions in customs and other import duties. However, as the choice of accession to WTO and timing is at the discretion of The Bahamas, there is an ability to defer any reductions until a more comprehensive fiscal reform plan has been vetted and implemented. The policymakers and senior officials have not indicated any inflexibility in the timing of WTO accession and the required reduction of customs and import duties; if this is not the case, clear statements should be made to this effect.

  •     the estimate of $190 million collectible from payroll taxes was based on the estimated total salaries and wages in The Bahamas from information gathered from Government agencies that were reported to various external agencies. The estimated salaries and wages was $3.8 billion and at 5% tax would equal $190 million.

  •    there was no proposed ceiling on salaries and wages subject to payroll tax, such as in the case of National Insurance contributions.

  •     the proposed tax base was not limited to salaries and wages, and would include a much broader concept of earnings from employment. The Coalition has received definitions from Jamaica and Bermuda, which have such forms of taxation and the definition of payroll is quite broad and

    really determined by definition in the legislation.

  •         who pays the payroll tax is still being evaluated. Our dynamic economic modelling is analysing scenarios where this is borne solely by the employer, and others where it is split between employee and employer.

  •         In countries in the Caribbean, the payroll tax has been found to be the most efficient form of taxation in terms of compliance and collection, when compared to other taxes administered in those same countries.

  • the cost of administering payroll tax was estimated to be minimal, as the systems and persons administering National Insurance contributions could also administer payroll tax. It is not expected that new systems would need to be acquired or new personnel engaged to administer this tax, which is in stark contrast to the costs estimated to administer VAT, both by the Ministry of Finance and the business sector.
The Coalition has repeatedly requested, from the policymakers, access to any analyses and studies conducted in assessing the merits and demerits of VAT and alternate forms of taxation. To date, we have only been provided the IDB study, which was completed in the Fall of 2013; this was not a forecast model and only analysed VAT. If there are other analyses and studies in the possession of the policymakers that were used to determine the rates at which payroll tax would be required, the Coalition would welcome receiving such studies and analyses to assess the validity of public statements and to help guide its recommendations and proposals. In the absence of such documents, the Coalition will continue to press ahead with its dynamic economic modelling and will be guided by the empirical evidence.

Of equal importance, is that the debates continue to focus on fiscal reform and not solely tax reform. It has been said by many, including the senior officials in the Government, that The Bahamas cannot solely tax its way out of the fiscal crises we face. There must be equal attention paid to expenditure control and growth of the economy. Unfortunately, insufficient time is being devoted to those elements and the Coalition’s goals and objectives are to continue to agitate for better compliance and collection of existing taxes, much improved expenditure control and fiscal reporting, and policies and initiatives that will spur economic growth.

The end goal of all of us contributing to the debates over fiscal reform, is and must be the improved fiscal position and performance of The Bahamas. As the cliché goes, if you are not a part of the solution you are a part of the problem. As Bahamians, we must all agree that sacrifices must be made, but equally, we must all challenge decisions and policies being proposed to ensure that they are well researched, documented and thought out; and our policymakers must respect that their decisions can be challenged and the best means of garnering support for the decisions is to present the facts and empirical analyses that clearly demonstrate the superiority of their chosen course.



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