The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Democratic National Alliance's (DNA) ex-leader yesterday argued that The Bahamas "certainly needs to explore" replacing the present regressive taxation system with an income tax.

Branville McCartney, backing the International Monetary Fund's (IMF) call for this nation to examine income tax as a more equitable "medium term" alternative, told Tribune Business "it cannot be fair" that lower income Bahamians spend a greater proportion of their earnings on taxes than their wealthier counterparts.

"The government must look at other means in terms of taxation," he said. "This VAT is not working. It's causing a strain, and going to cause more of a strain if we don't look at other methods.

"Income tax may be something we need to look at. It's a more fair type of taxation, and something we certainly need to explore especially in light of the fact it will be fairer to the Bahamian people as a whole.

"You have the person making $5,000 a week paying the same amount of taxes as someone making $250 a week or minimum wage. That's certainly not fair," Mr McCartney continued. "That ought to be at the forefront of the minds of the government in terms of reassessing this tax system we have.

"It's regressive taxation. Unfortunately, it is showing in the business sector and every day living of the Bahamian people. We ought to explore that, we ought to explore that. If I'm not mistaken this administration, in Opposition, said that VAT was a regressive type of taxation but, when they got in, they increased it to 12 percent.

"As was said prior to the 2017 general election, it's a lazy way to get monies into the Government's coffers. It's a lazy way, but yet I don't see as a country where we're trying to get rid of that lazy way and look at something that's fair and will ultimately benefit the country and, by extension, the Bahamian people."

Despite Mr McCartney's enthusiasm for an income tax, K P Turnquest, deputy prime minister, said earlier this week that the Government has no plans "at present" to introduce such a levy in either personal or corporate form.

He indicated in an interview with Tribune Business that The Bahamas' population size, and workforce of around 220,000, was too small to generate sufficient revenues from an income tax to cover the Government's financial needs.

Pointing out that there are only 400,000 residents in The Bahamas, Mr Turnquest said an income tax would likely impose "a significantly higher tax burden" on a Bahamian middle class that has frequently been squeezed by tax and cost of living increases over the past two decades.

The advantages of an income tax are that, as a progressive levy where payments are linked to ability to pay, it would be fairer and more equitable for all Bahamians - especially those on lower incomes. The disadvantages, though, are its complexity and administrative costs, coupled with the absence of any "income tax" culture in The Bahamas and the likelihood wealthier persons would find loopholes to reduce their burden.

Mr McCartney, meanwhile, accused the IMF of being "too harsh" in its pessimistic assessment of the Government's ability to hit both its short and medium-term fiscal targets - especially those set out in the Fiscal Responsibility Act.

Praising the Minnis administration for "taking the first step" by passing the Act, the former DNA leader said the IMF "should know better" in that it takes time to swing a country's national finances on to the right path if they have been in a deficit position for years.

The IMF, in its Article IV assessment, expressed scepticism that the Government will make its 2017-2018 fiscal deficit target of 1.8 percent of GDP or $229m. It also forecast that achieving "the fiscal balance", as set out in the Fiscal Responsibility Act, would only happen in 2022-2023 - later than the Government is projecting - while the debt ratio will remain above 50 percent of GDP goal beyond 2024-2025.

Mr McCartney, though, argued: "I think the fact that the Fiscal Responsibility Act just came into play really dictates that it will take some time for us hit these targets. The Government showing an effort to comply is the first step.

"The IMF should know better than this. It takes time to come to fruition. There's a lot of cleaning up to do but the Government has taken the first step in the right direction. We've got to give credit where credit is due and I think the IMF is being a bit harsh.

"It would be good if the Government was in a position to show the IMF otherwise, but the reality is it takes time and adjustment, and the IMF is a bit harsh in this instance."

Mr McCartney said the IMF's projections "ought to give this administration encouragement to prove them wrong or show that the best efforts in the circumstances have been made to hit those targets."

While The Bahamas should always be open to advice and recommendations from outside bodies, he added that such measures should only be adopted if they were "in the best interests of the governance of this country".