The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian accountants are proposing that a 7.5 per cent Value-Added Tax (VAT), combined with employee payroll and corporation taxes at 3 per cent each, could help achieve a balanced Budget within the Government’s target deadlines.

The final draft conclusions of the committee appointed to study VAT by the Bahamas Institute of Chartered Accountants (BICA) back those who have called for the VAT rate to be lower than the initially proposed 15 per cent, something the Government appears to have accepted.

The findings summary, obtained by Tribune Business, joins those who have called for the Bahamas to adopt a comprehensive approach to fiscal reform, attacking both the revenue and expenditure sides of the Government’s finances.

And the BICA committee also calls for the “unfettered powers” handed to the VAT Commissioner by the draft Bill to be reined in, ensuring they match the constitution and best practices in other Caribbean countries that have implemented VAT.

The most interesting conclusion, though, is that the BICA committee recommended that a lower rate VAT be combined with some form of payroll tax (the Coalition for Responsible Taxation’s favoured option) and also a corporate income tax.

While asserting that VAT “ought not to be more than 10 per cent”, the Committee’s draft summary recommends: “Ideally, a VAT at 7.5 per cent with an employee tax at no more than 3 per cent and a 3 per cent Corporation Tax would realise a balanced Budget within the same period as outlined in the Inter-American Development Bank (IDB) report.”

That is likely to be a reference to the IDB’s own study on VAT’s likely economic and social impact on the Bahamas. The Government is aiming to eliminate the recurrent account deficit by the 2015-2016 fiscal year, and get this into surplus in the following fiscal period.

The BICA commmittee’s “ideal” VAT rate is also in line with that suggested by former finance ministers and Central Bank governors, James Smith and Sir William Allen, who both plumped for 7.5 per cent. The committee described the 15 per cent VAT rate as “too burdensome”.

Elsewhere, its main concern appears to be that the wide-ranging powers granted to the VAT Commissioner lack checks and balances.

“The draft VAT Bill needs several amendments, as it gives the VAT Commissioner unfettered powers, in effect making him/her prosecutor, judge and executioner,” the committee’s draft proposals to the Government state.

“The VAT Commissioner’s powers ought to be reviewed and conform to the constitution and best practices around the region.”

The BICA Committee also called for a VAT Rules Committee to be established, with its members featuring MPs, professional body representatives and non-governmental organisation (NGO) officials.

And, urging a holistic approach to fiscal reform, the BICA group said the Government had to “halt our appetite to borrow”.

“Proper fiscal management is one of the major solutions to the halting of the debt crisis and balance of payments deficits,” it added.