The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Securities Commission’s acting top executive has warned that Value-Added Tax (VAT) will extend the regressive nature of the Bahamian tax system, with the Government unwilling to tackle the income tax “sacred cow”.

Hillary Deveaux, the regulator’s temporary executive director, said he opposed the way in which the Government’s tax reform ‘White Paper’ so easily dismissed the possibility 
of introducing a Bahamian income tax rather than VAT.

Pointing out that the Bahamas already had a ‘poll’, or income-based, tax through National Insurance Board (NIB) contributions, Mr Deveaux said VAT would perpetuate the practice of poorer Bahamians paying a greater proportion of their income in taxes than richer people.

While this already occurs with Customs and import duties, VAT, as a consumption-based tax on value added at every stage in the production chain, will have similar - though perhaps not as obvious - effects.

“Poor people pay more taxes as a percentage of their salaries than the rich, so you have this great divide where the regressive nature of our tax system is clearly a position that needs to be addressed,” Mr Deveaux told Tribune Business.

“It [VAT[ doesn’t deal with the regression of the tax system we have.”

Asked about the possibility of introducing income tax in the Bahamas, he added: “It’s something that could be beneficial, but there’s some sacred cows in this country, and government is not prepared to do it because they feel it will put the country at a competitive disadvantage in terms of securing investment.”

Speaking at the same Bahamas Association of Compliance Officers (BACO) forum, Michael Halkitis, minister of state for finance, said the Government was confident it could implement measures to protect lower income Bahamians from the worst effects of tax reform and VAT.

Pressed by Mr Deveaux on the regressive nature of VAT, the Minister said income tax was not a possibility “in the near future”.

“Some groups don’t want to see no tax, others don’t want to see no government,” he added.

“We think that’s [income tax] like a sudden departure from an almost sacred position which requires long-term study.”

Mr Deveaux had earlier pointed out a further regressive feature of the Bahamian tax system, noting that owners of property valued at over $5 million enjoyed a $50,000 real property tax cap.

“Being an economist, you say: ‘Why are the poor people bearing the burden of any tax system?” Mr Deveaux asked.

“I disagree with the White Paper when it starts talking about income tax having some disincentives,” he said, adding that top income tax rates in developed countries had come down to the 35-55 per cent 
range.

“But most Bahamians will look at that and 
say: ‘There are sacred cows in this country, and 
one of those is income tax,” Mr Deveaux acknowledged.