The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The private sector’s Tax Coalition has submitted $304.427 million worth of new revenue-raising measures to the Government as part of its alternatives to Value-Added Tax (VAT).

Documents obtained by Tribune Business suggest the Christie administration can raise more than $633 million per annum via a combination of new taxes and fees, combined with increases to existing levies and better enforcement/collection of the existing tax system.

A draft of the Coalition for Responsible Taxation’s submissions, which were handed to the Government the week before last, estimate that increasing just a few existing taxes could raise an extra $34.2 million, while another $295 million in Customs duties and real property taxes go uncollected annually.

The Coalition’s main ‘new tax’ proposal is a 5 per cent payroll tax, which is estimated to generate $175 million annually based on a $3.5 billion national wage bill and $6,500 per month salary cap.

The confidential draft seen by Tribune Business reiterates that this can be collected and administered via the National Insurance Board’s (NIB) existing infrastructure, adding: “This will require no new systems or administrative costs.”

This implies that the payroll tax, which accounts for 57.5 per cent of the Coalition’s proposed ‘new tax’ revenues, will be cheaper and simpler to administer than VAT.

Robert Myers, the Coalition’s co-chair, recently confirmed to Tribune Business that its draft VAT alternatives had been submitted to the Government.

He explained that figures were lacking in some areas because the private sector was then still awaiting the release of the Government’s dynamic economic modelling of VAT’s impact.

Other key ‘new tax’ proposals, as the private sector ramps up efforts to find VAT alternatives, include:

• A Capital Gains or Withholding Tax, set at 25 per cent, on the net profits derived by foreigners from selling Bahamian real estate.

As a rough calculation, the Coalition’s draft said applying this rate to the $75 million collective net profit derived from selling 50 homes (each generating $1.5 million in capital gains) would net $18.75 million annually for the Public Treasury.

• Lowering the Business Licence fee to a nominal rate of $100 per year for all businesses, as initially proposed in the Government’s tax reform ‘White Paper’.

The Coalition, though, goes a step further by suggesting that the Bahamas implement a 10 per cent tax on corporate profits. And it suggests that the nominal $100 Business Licence fee be paid to the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), rather than the Government.

With the Chamber effectively acting as a tax collection agent for the Government, the Coalition’s proposal said: “BCCEC to act as a watchdog for tax evasion and monitor who holds current licences.

“This also allows the private sector to better monitor and understand the business community. Deductions may be written off against the corporate profits tax to encourage capital investment, training, equipment purchases etc.

“This will stimulate the economy, and provide incentives to businesses to reinvest in their business. Corporate tax will apply to all Bahamian businesses, including retail banks, financial services and offshore financial services.”

Estimating total Bahamian private sector GDP at $6.375 billion, and taking an average 5 per cent profit margin, the Coalition said the resulting $336.774 million in total profits – taxed at 10 per cent – would generate some $33.677 million in new government revenues.

Acknowledging that the 5 per cent profit margin was low, the Coalition said this conservative estimate allowed for “corporate write-offs against capital improvements”. Offshore companies would either be exempt or taxed at a lower rate.

• Another controversial element to the Coalition’s proposal is a ‘shipping lane tax’, which would levy an undisclosed rate, based on tonnage, on all international vessels traversing Bahamian waters.

“All ships sailing in Bahamian waters should pay a shipping fee of $xx per ton,” the document said. “This has the potential to capture millions of dollars, as all shipping going into the Caribbean from the US or the Gulf has to pass through the Bahamas.”

No revenue estimates were given, and it is unclear how easy it would be to administer and collect such a tax.

The other strands in the Coalition’s ‘new tax’ package are:

• Legalising, regulating and taxing the web shop gaming business. It estimates this could generate an additional $20 million annually for the Government.

• Increasing the cruise passenger departure tax by $3 per head, and providing no volume-related credits to the cruise lines on that $3.

Estimated to raise an extra $12 million.

• The new Casino Gaming Bill. The documents said the Bahamas Hotel and Tourism Association (BHTA) believed legislative reform would generate $15 million in taxes from the sector during the first year, and $30 million thereafter.

• Imposing a five-year age limitation on imported vehicles, with exemptions for antique cars, heavy equipment and machines.

Projected to have revenue-raising potential of $15 million, the Coalition study said: “This will result in better fuel consumption, better road safety, lower dumping issues and lower emissions and pollution.”

• Activate long-harboured plans for the Bahamas to take back control of its air space via a Flight Information Region (FIR), requiring planes flying over this nation to pay fees (overflight rights) for doing so.

The Coalition gave no estimate of the potential earnings, but Tribune Business has seen estimates dating from 2005 suggesting the earnings could be $30 million annually.

As for increases to existing taxes, the Coalition has recommended increasing road tax on all vehicles by 25 per cent, with this paid directly to the Government’s Central Revenue Agency (CRA).

With this increase pegged at $30, and 150,000 vehicles on the road, the extra revenues were estimated at $4.5 million per annum.

Other key proposals included:

• Lower the ‘returning resident’ Customs duty exemption to $400 per person, and charge a $25 filing fee for every entry over this amount.

Estimating that there were 100,000 ‘returning residents’ annually, bringing in $200 worth of goods per head, the Coalition said the $20 million total – using a 35 per cent average tariff – should generate $7 million worth of revenue “and likely the same amount in local spending”. The entry fee would add another $2.5 million.

• A $0.10 per gallon fuel tax will generate an extra $11.7 million per annum, the Coalition said.

• Increasing Driver’s Licence fees from $20 to $50. This would create $4.5 million for the Public Treasury, based on vehicle numbers

• Levy real property tax on developed properties in the Family Islands, “with a higher ceiling to account for higher construction and operating costs”.

• Impose a per bed charge and cruising permit fees on foreign dive boats operating in Bahamian waters. This would be collected by marinas and agents, and paid to the CRA online.

“Dive operations to be licensed in the Bahamas and to pay all taxes just as Bahamian operations are required to do,” the Coalition said.

“If they don’t pay duty on their boats and equipment, then this will be factored into the per bed charge and cruising permit.”

• Marinas and agents to also collect the 5 per cent yacht charter fee, estimated as raising $4 million per annum. They will also collect increased fishing permit fees levied on foreign vessels.

The Coalition then estimated that the Government could earn an extra $200 million worth of Customs duty annually, largely by matching Bahamian companies’ foreign exchange control purchases with their duty payments at the border.

This will have the effect of cracking down on the practices of phony and under invoicing, false Customs declarations, and ‘transfer pricing’ where Bahamian firms are ‘invoiced’ by their own dummy companies in Florida.

Calling for all Customs payments to be made via wire transfer, US dollar drafts or credit cards online, the Coalition document said: “Link Central Bank and Customs, so there is a sharing of information and comparison completed regularly.

“Create a Central Bank number to be cross-referenced by Customs or the Central Bank over a given period of time that will evaluate businesses’ import values to exchange control approvals.”

Other recommended enhancements to the existing tax system are:

• Link Business Licence renewals to commercial real property tax compliance.

• Seize personal property “when arrears exceed cost of collection or seizure”. Some $95 million in real property tax went uncollected in 2010-2011.

The Coalition urged the police to “update hardware and software” , and start issuing more fines for traffic offences. Driver’s licence renewals should not be issued, it added, until all outstanding tickets were paid.

Calling for the cash payment of taxes to be eliminated as much as possible, with payment methods moved to credit cards and online, the Coalition also offered a series of “last resort additional measures” to the Government.

It suggested starting with a 5 per cent VAT rate, levied on all good and services, and all businesses with a turnover of $100,000 registering to pay it. This could then be increased to 10 per cent in the second year, the private sector group added, “if required and so long as we obtain the GDP improvements expected within the same period”.

Estimating that some $66.6 million would be raised via this method, the Coalition added: “VAT on food and beverage and other tourist-related services offered by, or through, any hotel or cruise ship destination island should be exactly the same as any other business in the Bahamas.

“VAT [must be] charged on all Bahamian tours sold by cruise ships while in Bahamian waters. Cruise ship margins must be regulated as they are making the local tours cost prohibitive.”