By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A top government official yesterday said Value-Added Tax (VAT) had “stronger merits” than any alternatives put forward by the private sector to-date, with those options also having to “confront” structural weaknesses in the Bahamian economy.
John Rolle, the Ministry of Finance’s financial secretary, told Tribune Business that while the Government had offered to run the private sector’s proposals through the same ‘economic modelling’ it had used for VAT, the latter’s “pro savings and pro investment” bias meant it remained the Bahamas’ best tax reform option.
He indicated, though, that some of the business community’s feedback on the draft VAT Bill and regulations were likely to “influence” amendments, although any changes would not be at the broad policy level.
And Mr Rolle also denied that the scale, and pace, of the fiscal adjustment sought by the Government was too rapid, arguing that its three-year target for seeing measurable improvement was “not very ambitious”.
He added that the timetable the Christie administration had set itself was one determined more by its own agenda, not external forces, and the need to remain “in the driver’s seat” rather than the likes of the International Monetary Fund (IMF).
Speaking after Tribune Business exclusively revealed the $304 million worth of new revenue-raising measures submitted to the Government by the private sector’s Coalition for Responsible Taxation, Mr Rolle said the Government’s initial offer to it remained.
This was to first help the business community understand the ‘dynamic economic model’, created by the Inter-American Development Bank (IDB), to assess VAT’s impact on the Bahamian economy, then allow it to run its alternative tax proposals through the same analytical framework.
Pointing out that the IDB model was suitable for analysing all tax proposals, Mr Rolle said: “We had discussions with the Coalition quite a number of weeks earlier, and we did send them some replies.
“What they have offered really were suggestions that we think can be studied at the same level as VAT, and they have to do so in the same framework.
“Realistically, one would have to look at not just those ideas, but administration,” he added. “What would it require for those ideas to be administered, should the Government respond favourably, and whether these are the kind of ideas that can be implemented in the timeline the Government needs for urgent reform to be undertaken.”
Acknowledging that tax reform was “not a static process”, Mr Rolle said it was possible that, even if they were rejected now, some of the Coalition’s tax reform proposals could be adopted over the long-term.
Yet he gave a firm indication that the Coalition’s suggestions have failed to shift government thinking on fiscal and tax reform.
Mr Rolle told Tribune Business: “If there’s a question whether, from the Ministry of Finance point of view, these [alternatives] are superior to the actions the Government has set before it in terms of VAT, we would insist at this point that VAT has stronger merits than those points being considered.
“We’re looking at a proposal [VAT] that is pro savings and pro investment. It’s not a tax on savings. You don’t disincentivise savings, and investments are ultimately financed from those savings.”
The Coalition has proposed a 5 per cent payroll tax, capped at $6,500 per month, as its main VAT alternative, suggesting this would generate $175 million annually for the Government with lower administrative costs.
Other revenue-raising options included a 10 per cent tax on corporate profits, coupled with a flat $100 Business Licence fee for all companies, plus a tonnage-based ‘shipping lane tax’ on international vessels travelling through Bahamian waters.
Mr Rolle, though, said many of these alternatives would run into long-time structural imperfections in the economy.
“What we have said is there are structural issues in our economy from a policy standpoint that have to be considered with a lot of these other taxes,” he told Tribune Business.
“With income tax, how broad could the reach be? Corporate tax, how broad could the reach be? What other changes in the existing regime would the Government have to consider to implement these taxes in an equitable fashion, so all taxpayers would be called upon to pay?”
Still, Mr Rolle said the Government was “getting very useful feedback, some of which will influence revisions to the legislation”.
This had been received from various industries and business groups, he added, and would help companies with their “set up to implement the system” and clarify how VAT would work.
Promising that the Government would provide detailed guidance notes for the private sector in this area, Mr Rolle said the feedback was likely to influence VAT-related administrative issues, rather than affect policy direction.
He added that VAT’s July 1, 2014, implementation deadline, and the Government’s overall fiscal consolidation timetable, was being influenced more by domestic priorities than outside pressure from the likes of the IMF, World Trade Organisation (WTO) and Wall Street rating agencies.
“It is more important from the Government’s standpoint that with the consolidation that started this year, one sees that process picks up in speed,” Mr Rolle said.
“What is important is we see the continued trend in consolidation in the Government’s finances. The timeline is important. It shows the build-up in momentum to consolidate government’s finances through all the measures and tools it has at its disposal.”
He denied, though, that the timeline for fiscal adjustment was too aggressive, and could result in a great shock to the economy, given that the Government is aiming to go from a $443 million fiscal deficit to recurrent surplus within three years.
“The medium-term framework is to see measurable results in three years at a minimum. That’s not very ambitious,” Mr Rolle told Tribune Business.
Noting the current fiscal upheaval in Barbados, Mr Rolle said the Government’s strategy was intended to ensure it remained “in the driver’s seat” on fiscal consolidation, with all controls at its disposal.
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