The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Value-Added Tax (VAT) is not the best fiscal reform option for the Bahamas because “it does not hit the rich”, a leading financial analyst is arguing.

Richard Coulson, who is also a Tribune Business columnist, in a letter set to be published in this newspaper shortly, says VAT - which is a consumption-based tax - will fail to capture many income sources enjoyed by high-earning Bahamians and residents.

In remarks which he acknowledged were likely to create some controversy, Mr Coulson writes: “VAT is not the answer for the Bahamas because it does not hit the rich.

“Lawyers, doctors, accountants, corporate executives, government ministers, investors or consultants like me will only suffer indirect pain from VAT.

“Our incomes, in the form of fees, commissions, salaries, dividends, interest and capital gains, will remain untaxed. In the modern world, that free ride won’t work.”

Speaking briefly to Tribune Business on the subject yesterday, Mr Coulson said: “Very few people take my point of view, but it’s relevant.”

Many observers have consistently pointed out that, just like the existing import tariffs structure, VAT is a regressive tax because lower income Bahamians will spend proportionately more of their income in tax payments than higher earners.

The Government has argued that VAT’s capture of services in the tax base will minimise this inequality because higher income earners consumer more of these products, but few have been convinced.

And the two New Zealand tax consultants brought in over the past week by the Government, John Shewan and Don Brash, have repeatedly argued against making the likes of electricity bills and basic food items VAT ‘exempt’ on the grounds that this will be tantamount to a subsidy/tax break for high income earners.

Mr Coulson, in his letter, suggests that the Bahamas focus on taxing income derived locally while exempting that obtained from foreign sources - something that may benefit the two largest industries, tourism and financial services.

Suggesting that the Bahamas “shelve the out-dated dream of advertising ourselves as a tax-free paradise”, he also pointed out that New Zealand’s tax system combined VAT with personal income taxes.

The Bahamas, unlike many other nations, is not contemplating bringing in income taxes or any other taxation form alongside VAT - unlike many other Caribbean countries.

Another sceptical about the advice from the New Zealand consultants is Nassau Institute executive Rick Lowe.

He told Tribune Business: “The cost of living in New Zealand, depending on what indice you use, is 35 per cent higher than in the US. It’s almost as high as ours.”

Suggesting Messrs Shewan and Brash’s advice was being offered solely from the Government’s perspective, Mr Lowe said they appeared to be “on a mission to placate Bahamians and sell the Government’s message”.

He added: “It’s an easy out for the Government. Everything I’ve read from them [the Government] is how wonderful VAT is, we should be happy to charge the tourists and, oh, by the way, make the social security net larger.”

Mr Lowe suggested the advice had to-date not made the Government “sit up and take notice”, other than delay VAT’s implementation - something that had already been on the cards prior to the New Zealand consultants’ arrival.

Still, he added: “It [the advice] points to the fact the Government did not know what they were doing all along, and they were not interested in speaking to local professionals about it. They were putting on a good front.”

Several other observers have questioned privately to Tribune Business why the Government appears so eager to listen to foreign consultants, given that the New Zealand duo have largely repeated - and vindicated - many of the concerns expressed on VAT by the private sector over the past year.