The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has “boxed itself in” by delaying fiscal reform until it reached “crisis point”, a leading accountant arguing that new taxes should be been introduced “10 years ago” when the economy was booming.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, said that by leaving necessary reform until the last minute, the country was not managing change in a way that could achieve the twin objectives of sound public finances and economic growth/job creation.

Agreeing that the Bahamas should have known fiscal/tax reform was necessary from 20 years ago, when it first started moves to join rules-based trading regimes, Mr Winder also suggested it did not have the luxury of phasing in import duty cuts.

Taking an opposite position to Gowon Bowe, the Coalition for Responsible Taxation’s co-chair, the Deloitte managing partner said that given the Government’s year-end timetable for completing World Trade Organisation (WTO) accession requirements, it had no choice but to “move quickly to slash tariffs”.

Mr Bowe previously told Tribune Business he had seen nothing in the WTO rules that required the Bahamas to immediately slash Customs duties by $300 million in one fell swoop, adding that this called into question the need to replace them with a Value-Added Tax (VAT) projected to generate $500 million.

As a result, the Coalition was pushing a $190 million, 5 per cent payroll tax as its short-term VAT alternative.

However, Mr Winder, who was the Bahamas’ lead trade negotiator under the former Ingraham administration, said the country did not have the luxury of phasing in/waiting on tariff cuts, as the Coalition is hoping, because it also needed to cut deeply to get to the WTO’s 15 per cent desired average.

“Because tax reform has waited so long, we find ourselves in a situation where we have not truly been able to assess all sources of revenue used by other industrialised countries,” the top accountant told Tribune Business.

“We’ve boxed ourselves in.... These [new] taxes should have been in place some years ago when the economy was booming. It would have been great if these taxes were put in place 10 years ago when the economy was doing good, generating jobs and activity.”

Acknowledging that the Government’s preferred VAT “has a lot of challenges and issues”, Mr Winder said the same was true of all other tax options. He agreed, though, that the likes of a payroll tax and corporate income tax, and respective tax rates for both, should merit the Government’s consideration.

“All these things are being left off the table,” Mr Winder said. “The taxation of certain industries that are not being taxed, all these things need to be considered in the overall process of coming up with the right taxes.”

He indicated that the proposed VAT was being viewed solely as a government revenue generator, and “what’s being left out of this whole discussion” was fiscal/tax reform that encouraged investment by Bahamian and foreign-owned businesses.

“Here again, because we have boxed ourselves in, we are not dealing with the whole process in a way that generates growth and also promotes revenues,” Mr Winder said.

Urging the Government to move slowly on fiscal reform, especially with VAT rates, he agreed that “time is against us”.

Describing the Government’s target VAT deadline as “just impossible” from a practical standpoint, Mr Winder said the Government was in a ‘damned if you do, damned if you don’t’ position.

Failure to meet that target would hurt the Government’s debt and deficit reduction targets, and possibly lead to a further sovereign credit downgrade, while pushing ahead would potentially “hurt the economy” - especially if the VAT rate is too high.

“We’re all to blame, the Government and the private sector,” Mr Winder told Tribune Business on the Bahamas’ current tax reform quandry.

“We haven’t, as a nation, sat down and reviewed all of his, and come up with a package that can serve all of these different purposes we’d like to serve, which is grow the economy, create jobs and raise revenues.

“The sad part about this,” he added, “is once again, we are a nation having to deal with matters from a crisis point of view, and that’s where we are. We’re in a crisis.”

And, contradicting Mr Bowe’s comments, the Deloitte & Touche (Bahamas) managing partner said the large gap between the nation’s current average tariff rate (around 35 per cent) and the 15 per cent demanded by the WTO meant “immediate action” was required on duty slashing.

With the Government seeking to complete the WTO full membership accession process by 2014 year-end, Mr Winder added: “To meet the timeline, the Government must move quickly to slash revenues.”

He explained that the Government had already moved to lower average tariff rates by placing higher yielding revenues items, such as automobiles, alcohol, tobacco and petroleum products, under the protection of the Excise Act.

“The issues arises that there needs to be a reduction in average tariffs to meet that average of 15 per cent,” Mr Winder said.

“Yes, the WTO do allow nations to phase in some aspects of tariffs. However, the average tariff for nations acceding to the WTO in the last three-four years has been 15 per cent, so the Bahamas cannot hope to be in a position where that average tariff exceeds 15 per cent by any significant amount.”

Hence the need to cover the shortfall with a tax such as VAT. “The Coalition, in any replacement that is being recommended, must take into consideration that there be a need for additional revenue to replace tariffs being reduced,” Mr Winder told Tribune Business.

“While it would be nice if we can wait and push it down for five-seven year, the reality is we may not have that option.”