The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday urged to stop focusing on Value-Added Tax (VAT) as a “one trick pony” to fix all its fiscal woes, a Tax Coalition co-chair warning it could not keep coming back to law-abiding taxpayers for more due to its enforcement failures.

Robert Myers, speaking in the wake of the International Monetary Fund’s (IMF) Article IV report release, which found that Customs and the real property tax departments were performing “below 50 per cent of the revenue potential”, again urged the Government to fix the existing tax structure before turning to VAT.

The Coalition for Responsible Taxation’s co-chair said the failure to properly enforce compliance made “a laughing stock” and “a mockery” of the system, and raised questions about whether the same would occur with VAT.

Questioning why the Government does not apply the fines and prison terms it is proposing for VAT non-payers to real property tax defaulters, Mr Myers said the Bahamas needed to look beyond mere tax reform to solve the crisis in its public finances.

The failure to implement broader fiscal reform was the fatal mistake Barbados made, he added, arguing that there were no “easy answers” in the Bahamas.

Suggesting that the Bahamas had contracted a 35-year “disease” of deficit spending, Mr Myers told Tribune Business that, as in life, it was impossible to simply “take one pill and get better”.

Backing the IMF report’s call for the Government to close weaknesses in the existing tax system, he said: “It needs to be fixed. There’s no point in implementing and putting in new laws when you are not capable of complying and adhering to the existing taxes.

“You make a mockery of the system if you are not prepared to collect what is due, if you are not prepared to enforce what is due under the existing system, it becomes a laughing stock. Why implement new taxes?”

Mr Myers said the IMF report suggested that Customs could double the roughly $700 million revenues it collects annually for then Government, while real property tax could rise by some $90-$100 million.

Yet he added that the Government’s failure to enforce the law against delinquent taxpayers, especially those that can but will not pay, meant it had lost the morale high-ground in seeking to extract more from those Bahamian businesses and consumers that were always compliant.

“If you can’t enforce the law, you can’t go back to people and say we need more taxes when can’t collect the taxes you have and enforce the rule of law to get that to happen,” Mr Myers told Tribune Business.

“It’s not fair to keep taxing the law-abiding citizens when the informal economy continues to grow. What that’s saying is that we’re not capable of taxing those people, not capable of enforcing the law or compliance, so we’ve got to come back to you guys for more. You can’t tell people that, and that’s why they’re [the Government] getting push back.”

The Tax Coalition co-chair added: “Let’s start enforcing the rule of law and getting compliance with the existing taxes.

“It’s not going to take very long if you start seizing property and putting people behind bars for not paying taxes. If you’re going to put people behind bars and fine them for not paying VAT, why can’t you do that with existing taxes.”

The Government is owed more than $550 million in unpaid real property taxes, and there is a suspicion among many in the private sector that VAT - which the largest 4,000 businesses will have to collect and pay to the Government - will, apart from transforming them into vassal tax collectors, also leave the burden on those who are already tax compliant.

Mr Myers, meanwhile, warned that the Bahamas would “fail” if it solely focused on tax reform to the exclusion of wider fiscal reforms, arguing that the two concepts were not the same.

He added that in meetings with the Ministry of Finance yesterday, there was “not enough awareness” and “not enough said” about the need for wider adjustments beyond VAT.

“They have absolutely lost the plot if they think this is just about tax reform,” Mr Myers told Tribune Business. “They’ve got this fixation on a one-trick pony.

“Everyone wants an easy answer, wants to take a pill and get better, but that’s not life. You don’t contract a disease for 35 years, take two pills and get better. This is a disease we contracted, especially in the last 20 years, and it is not going away by swallowing a VAT pill.”

Mr Myers also drew comparisons between the fiscal situation and diabetes, likening VAT to insulin, but warning that other factors - such as a change in diet (wider reforms) - were also part of the equation in ensuring the patient lived a long, healthy life.