The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s initial 15 per cent Value-Added Tax (VAT) proposal would have slashed the Bahamas’s debt-to-GDP ratio to a “pre-crisis” 33 per cent by 2024, a private sector-commissioned study revealed yesterday.

The Oxford Economics report said that five of the six tax reform scenarios it ran achieved a major reduction in the Bahamas’ fiscal deficit and national debt, the only exception being a 10 per cent VAT with a high level of ‘exempt’ goods and services.

“Broadly speaking....., the various strategies for deficit reduction achieve a substantial degree of fiscal tightening,” Oxford Economics said.

“The largest tightening is achieved in the baseline case, with government debt falling back to around pre-crisis levels (33 per cent of GDP) by 2024.

“In other scenarios (except 10 per cent VAT), debt falls to between 35 per cent and 42 per cent of GDP by the end of the forecast horizon. On the other hand, the reduction in [10 per cent VAT with exemptions] is less substantial, with government debt falling to a still fairly elevated 50 per cent of GDP by 2024.”

With a 15 per cent VAT and the current exemptions list, the Oxford report projected the Government would be earning $1.637 billion in annual revenues between 2013-2014, with the next best generators a 10 per cent VAT with no exemptions, and a 7.5 per cent VAT.

Both payroll tax options were projected to generate more revenue than a 10 per cent VAT with no exemptions.

The findings were published as different views emerged on whether the Bahamas needed to implement new taxes to escape its fiscal woes.

Gowon Bowe, the Coalition for Responsible Taxation’s co-chair, told Tribune Business: “While there’s a general sentiment we would like to avoid new taxes, there’s a harsh reality that there has to be a broadening of the tax base.

“There’s a general understanding now that to exclude services, and focus on a limited portfolio of goods, is not going to give you the broad tax base you need going forward.”

He added that the “selfish attitude of ‘no money comes out of my pocket’” would have to be replaced by an approach that “minimises how much comes out of my pocket and ensures we get a fair share from those that can most afford it. That’s going to be the end game for the Government”.

Acknowledging the needs to improve compliance rates on existing taxes to 75-80 per cent “across the board”, Mr Bowe nevertheless said this would be “a work in progress that’s going to take considerable effort and concentration over several years”.

Emphasising that the Bahamas did not have the luxury of waiting on this, Mr Bowe said this nation did not get into its tax non-compliance mess overnight, and getting out would take just as long.

However, while describing the Oxford Economics study and findings as “reasonable”, Rick Lowe, an executive with the Nassau Institute think-tank, argued that the Bahamas - and particularly certain industries - did not need any more taxes.

“I don’t think we need any new taxes,” he told Tribune Business. “The Government needs to figure out a different way to grow the economy.

“How much more can we bear? There are several industries that are the focal point of many of the taxes - automotive, food and gasoline. You’re targeting just a few sectors. I think we’ve reached a breaking point in those sectors that are very heavily taxed.”

Mr Lowe suggested the Government reduce regulations or taxes on such industries, and said the Coalition study failed to address excessive government spending.

“Many of us have said for a decade-and-a-half now that the Government has been imprudent. What are we doing to ensure they don’t continue this practice?” he asked.

“What you are telling us does not address the fundamental problem that got us in this position; government waste.”