The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s biggest private sector supporter believes it would be “unwise” to ignore the “widespread opposition” to Value-Added Tax (VAT), as he appeared to back the merits of a payroll tax alternative.

Franklyn Wilson, the Arawak Homes and Sunshine Holdings chairman, suggested to Tribune Business that if the private sector’s $190 million annual revenue estimate “checks out”, a payroll tax appeared a credible alternative to VAT.

He pointed out that the Bahamas had already achieved a “remarkable degree of consensus” that fiscal/tax reform was unavoidable, and on how much extra money should be raised, the only outstanding issue being the best way to achieve this.

And Mr Wilson warned that the Bahamas “should not disappoint” the international community, particularly the International Monetary Fund (IMF) and credit rating agencies, by failing to execute the necessary policy changes.

However, the well-known businessman added his voice to the likes of Brian Moree QC, who have already warned the Government it would be dangerous to push VAT on the Bahamas without widespread buy-in by the private sector and consumers.

“The business community has taken another point of view, and it’s important for the Government to listen to the widespread views held by so many people,” Mr Wilson told Tribune Business.

“I think it would be unwise for any government not to listen to such widespread opposition to such a change in public policy, particularly when there is a consensus: ‘Let’s get it done, let’s just find another way’.”

Mr Wilson added that this would be a prudent course of action “for any Minister of Finance to do”, and then appeared to talk up the merits of the private sector’s main VAT alternative.

Gowon Bowe, the Coalition for Responsible Taxation’s co-chairman, recently told a Bahamas Society of Engineers (BSE) luncheon that a 5 per cent payroll tax could generate $190 million in extra annual revenues for the Government.

“Among the suggestions which the business community has put forward, they say this payroll tax thing will raise $190 million,” Mr Wilson said.

“If that thing checks out, and I’ve not heard anyone suggest it’s not a credible alternative; if the numbers check out, the business community said that’s an option.”

While the payroll tax would come close to achieving the net $200 million revenue increase projected from VAT, it would not cover the $300 million that has to be made up from the drop in Customs duties. The private sector, though, has submitted other tax measures to help fill that gap.

Mr Wilson’s remarks, in a subtle way, could be interpreted by some as confirmation of what Tribune Business sources have repeatedly said last week - that the Christie administration is seeking a ‘way out’ of the VAT impasse is has become entangled in.

Various sources close to the Government have suggested it is now pursuing a ‘twin track’ approach to fiscal and tax reform, realising the widespread - and growing - opposition to VAT may make it impossible to implement.

While Ministry of Finance and VAT Implementation Unit officials continue to push forward as if the July 1 implementation date is ‘set in stone’, several sources have said the Government is also now actively assessing whether alternatives such as the proposed payroll tax are viable.

They pointed to remarks made to Tribune Business by Michael Halkitis, minister of state for finance, last week when he said the VAT implementation date could be subject to change from a ‘political standpoint’.

With less than five months to go before VAT’s supposed implementation, the necessary legislation and regulations have yet to be finalised and passed by Parliament.

And with no Tariff Schedule released, it is now looking increasingly unlikely that the VAT implementation date can be met from a practical viewpoint - computer systems, training etc - never mind the political and fiscal standpoints.

Having dug itself into a hole, and with its back against the wall, Tribune Business sources have suggested the Government is seeking to extricate itself without suffering major damage in the form of sovereign credit rating downgrades.

For that reason, it has been suggested it is seeking International Monetary (IMF) cover, or endorsement, for its change of course in the hopes this will assuage the likes of Moody’s and Standard & Poor’s (S&P). The IMF, though, has been the leading advocates of VAT, urging the Bahamas to bring it in without delay.

The Coalition’s Mr Bowe, in a recent interview with Tribune Business, said the private sector is more than willing to help the Government on this front.

Rather that continually hitting it with a list of concerns and VAT alternatives, Mr Bowe said the Coalition’s approach in recent meetings has been to offer to work with the Government in developing a comprehensive plan and timetable for fiscal reform.

Explaining that the plan would outline targets and milestones that had to be achieved, Mr Bowe suggested it might go some way to alleviating credit rating agency concerns and preventing further downgrades.

“What we’re saying is that we can come up with a comprehensive plan, so we can tell all rating agencies it may be delayed by a few months, but the wait is not for the sake of delay,” he told Tribune Business.

“We can say this is a five-step or 10-step plan, starting from April or July this year, and these are the milestones we’ve got to achieve to get there.”

In some respects, Mr Wilson’s remarks to this newspaper sound like a plausible rendition of the message he, and the Prime Minister, may have given to the IMF delegation that was in the Bahamas last week.

V Alfred Gray, minister of agriculture, fisheries and local government, revealed last week that Mr Christie was late to a ceremony in Andros because the IMF was in town, with Mr Wilson also at the same meeting.

The Arawak Homes chairman also, in his interview with Tribune Business, pointed to the fact that the Bahamas’ recent $300 million foreign currency bond issue was 20 times’ oversubscribed.

This, he hinted, indicated that international investors and capital markets retain a high degree of confidence in the Bahamas’ creditworthiness - countering the views of Moody’s and Standard & Poor’s (S&P).

“Lets keep to the bigger picture on this,” Mr Wilson said, when contacted by Tribune Business last week.

“There’s a remarkable degree of consensus in this country that the Government needs additional revenue streams. Few countries ever get to that point of consensus. It’s also incredible that there is such a remarkable consensus on what this thing should raise - a couple hundred million dollars.

“When we have that degree of consensus, surely reasonable people should get to the next step: What is the most reasonable way to get that?” he added.

“If you’ve agreed the need to raise extra revenue, agreed what should be the target, I can’t believe reasonable heads can’t get to the bottom line.”

While emphasising that he had “no inside information and knowledge:” of the Government’s position, Mr Wilson described the $300 million bond offering’s results as “huge”, given that investors would have been aware of this nation’s internal VAT debate.

“I think we should not disappoint the global community by not being able to sort it out,” he added.