The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has seemingly failed to act on the Tax Coalition’s spending and compliance recommendations to ensure reform buy-in, and outright rejected calls for their to be “proportionate reductions” in border taxes.

The Coalition for Responsible Taxation, in its final position paper submitted to the Government on fiscal reform, warned that matching a low-rate Value-Added Tax (VAT) to a simultaneous proportionate reduction in Customs and Excise Taxes would ensure the greatest compliance and ‘buy in’ to the restructured tax.

Instead, while acceding to the Coalition’s call for a low-rate (7.5 per cent) VAT that is simpler and with “fewer exemptions”, the Government has decided to maintain the existing Customs and Excise Tax rates - a move that represents an increased cost of living burden for middle and lower income Bahamians.

“The Coalition holds the position that VAT must be implemented at the lowest possible rate with proportionate reductions to duty,” its position paper said.

“Under these circumstances, the tax has the potential to be broadly accepted, and therefore have greater compliance and generate greater revenue than many other inefficient existing taxes such as Business License fees, duty or property tax.”

And it added: “The Oxford Economics report presents various VAT rate scenarios, and given the stated objective of keeping the rate as low as possible to keep our tourism and other international competitiveness at the fore, and to foster continued economic recovery, the Coalition directs the Ministry of Finance’s attention to Scenario 6 (VAT at 5 per cent) and Scenario 3 (VAT at 7.5 per cent).

“Both have narrow exemptions, which allows the tax to be far simpler to administer and thus significantly widens the tax base and revenue potential.”

While the private sector and Coalition appear to have scored victories here, a concern too many is that the Government announced little that was new on the spending front, other than to promise a move to an accrual rather than the existing cash-based accounting system - something Tribune Business and accountants such as Raymond Winder have been calling for for years.

The Government, though, appears to have virtually ignored four of the five recommendations contained under the section ‘Tax reform must be accompanied by fiscal reform’ in the Coalition’s paper.

“Given the public discourse over tax and fiscal reform, it is clear that the private sector and wider populace are not in favour of any additional taxes, without clear demonstration from the Government of improved expenditure control, tax compliance and accountability,” the Coalition warned.

“Accordingly, the following commitments are necessary if there is to be consensus from the private sector on the introduction of new taxes.”

Top of this list was “the implementation of an act that, amongst other things, provides limits to capital and recurrent expenditure relative to Gross Domestic Product (GDP); requires comprehensive reporting of projected costs and benefits of planned programmes as a condition precedent; requires a balanced budget; and mandates reductions in the national debt and the building of national reserves”.

The Coalition also later added that a low VAT rate was “only viable with expenditure control and improved collection rates in other taxes, which the Government must commit to in order to demonstrate that all sectors, private and public, and the wider citizenry, must work together to make this happen – the burden cannot fall to any one sector”.

As for the Coalition’s other recommendations, it called for a Freedom of Information Act and protection for whistleblowers, plus the only thing on the list the Government has pledged to do - legalise and tax web shop gaming.

The others on the ‘to do list’ are energy reform and improved compliance rates on existing taxes.

“While this is a longer term initiative, there must be demonstrable efforts to modernise the processes and imbed greater accountability for a failure to achieve increased compliance, and greater penalties imposed on those businesses and individuals found to be evading taxes,” the Coalition added.

“Energy reform must be prioritised, with the appointment of a representative from the private sector to the committee charged with selecting an appropriate entity with which to enter into a Power Purchase Agreement (PPA) and devising the structure of the PPA.”

The Coalition also conceded that its proposed payroll tax would be a short-term measure, as it would be unable to compensate for all the border taxes that will be lost with the World Trade Organisation (WTO).