By NATARIO McKENZIE
THE Government should implement a 4 per cent sales tax and target a 3 per cent spending reduction as an alternative to Value-Added Tax (VAT), a senior accountant has urged.
Ronald Atkinson, in a presentation to a seminar organised by the Nassau Institute, warned that the Government’s present tax reform course was “alienating” the business community and would lead to “passive resistance”.
He added that with less money circulating in the economy as a result of VAT, and the business community being alienated by the Government’s actions towards tax reform, the Christie administration would not realise the $200 million increase in annual revenue it was anticipating.
“People no longer have the available cash they used to have. The liquidity is dropping within the economy, the amount of available cash is dropping, and they are simply not going to collect the money that they expect. What they are doing is alienating the business community,” said Mr Atkinson.
He warned: “If you alienate the business community, what you are going to get is what is known as passive resistance. That is, there is going to be a passive resistance to paying.
“If they have to pay on the 21st of the month, they will make it another week or the week after that, and when they get a letter then they will pay. Eventually, what this passive resistance will mean is that the massive cash flow which they think they’re going to have is not going to materialise. I’m told that National Insurance contributions are dropping. People are not paying on time like they used to.”
The Government has warned that fines, in the form of interest charges, will be levied on VAT registrants (companies) who are late in paying.
Still, Mr Atkinson proposed a 4 per cent sales tax as a “more feasible alternative” to VAT. He argued that the latter would prove “very cumbersome” to operate, and that the proposed 15 per cent rate was simply “too high”.
“I would propose a sales tax at 4 per cent, not a VAT. Four per cent, I believe, will not hurt our economy,” Mr Atkinson said.
“There would be a general acceptance in the business community to a 4 per cent sales tax. I think in the legislation they must make it a maximum of 8 per cent; in other words, it cannot go over 8 per cent in the year.
“If they had a 4 per cent sales tax and work with the business community they would get a much better result.”
Mr Atkinson added: “There must also be a 3 per cent reduction in government expenditure. The Government should use that money to expedite its loan payments. The Government needs to demonstrate its fiscal prudence to the outside financial world.”
Mr Atkinson described reports within the Caribbean on VAT implementation as “terrifying”, producing cost of living increases from 12-20 per cent.
“I have done my calculations, and with the cumulative effect I believe the cost of living is going to go up between 18-20 per cent,” he said.
“Recent Caribbean experiences with VAT have effectively demonstrated that an initial 15 per cent rate is too high. It’s just too high and there must already be an effective administration in place before implementation.”
He further noted that there was little talk on what impact VAT would have on the tourism sector, arguing that increasing costs would effectively discourage tourists and tour companies.
Mr Atkinson conceded that administering a sales tax would be challenging as well, adding: “There is no legal necessity to keep books and records, so a sales tax is undoubtedly going to be difficult to administer, police and enforce the correction on time payments.”