Transparency is key on tax reform debate

IN November 2005, the then minister of state for finance, Senator James Smith, was quoted as saying: "We have received the relevant studies, and very soon I hope to go to my colleagues to get permission to formally launch discussions with the wider public and stakeholders to share with them the results of these studies and to have discussions about the way forward."

Almost seven years ago, I first published a four-part series on tax reform and, at the end, I recommended a combination of a low income tax and a sales tax. It seems from all accounts that the Government has more or less settled on a Value Added Tax (VAT) as the way forward. My concern at the time was that I thought VAT was quite complicated to understand, and there was already talk of exempting too many sectors from the VAT tax.

Also, I expressed frustration that there was insufficient data in the public domain to enable independent analysis of the income yield from all taxation models being considered.

Over the years, we have had a succession of consultants attached to the Ministry of Finance helping us with this issue of tax reform, so I suspect there is no lack of studies and analysis that can be released to assist in promoting a more informed public discussion.

Budget Update

In listening to the Prime Minister's Budget update last week, it seemed patently clear to me that economic reform, of which tax reform is a major component, cannot be delayed much longer. The Bahamas' policy options are so limited that our only hope, in the short-term, is to pray for the US economy to recover, thereby allowing the Bahamas to gain trickle-down economic benefits and much needed 'foreign direct investment'.

In the long-term, we must reform our economy to position it to compete in this new global environment. We must find ways to: increase competitiveness and productivity; diversify and expand our economy; and reform our tax system, especially given that our current system of taxation has taken us as far as it can , notwithstanding the fact that our Budget options are constantly being challenged by our over reliance on 'customs duties'.

Call for a Policy Paper

It is clear from public pronouncements over the years that both the FNM and PLP have decided upon a Value Added Tax (VAT) as the way forward. This being the case, it only makes sense that the Government proceed to publish a 'white paper' on tax reform.

According to Wikipedia the online encyclopedia: "In the Commonwealth of Nations, 'white paper' is an informal name for a parliamentary paper; in the United Kingdom these are issued as 'Command papers'. White papers are issued by the government and lay out a policy, or proposed action, on a topic of current concern. Although a white paper may occasion consultation as to the details of new legislation, it does signify a clear intention on the part of a government to pass new law."

Conversely, if a final decision has not been made, then it would be appropriate to publish a 'green paper' on the subject. Green papers, also known as consultation documents, which are issued much more frequently, are more open-ended and may merely propose a strategy to be implemented in the details of other legislation, or set out proposals on which the Government wishes to obtain public views and opinion.

Whether it is a white or green paper...that is a matter for the Government of the day. However, the publication of such documents would go a long way in helping the Bahamas to develop a tradition of participatory democracy, whereby persons from all walks of life and all sides of the political divide can come together in a non-partisan way to help shape policies for the long-term benefit of the country.

Until next week...

NB: Larry R. Gibson, a Chartered Financial Analyst, is vice-president - pensions, Colonial Pensions Services (Bahamas), a wholly-owned subsidiary of Colonial Group International, which owns Atlantic Medical Insurance and is a major shareholder of Security & General Insurance Company in the Bahamas.

The views expressed are those of the author, and do not necessarily represent those of Colonial Group International or any of its subsidiary and/or affiliated companies. Please direct any questions or comments to rlgibson@atlantichouse.com.bs

Published On:Tuesday, March 02, 2010