By NEIL HARTNELL
Tribune Business Editor
The Tax Coalition’s co-chair yesterday queried how the Government had calculated that a 16 per cent payroll tax would be needed to match the revenues generated by a 10 per cent Value-Added Tax (VAT), calling on it to share its findings with the public.
Robert Myers told Tribune Business that the Government seemed to still misunderstand the Coalition for Responsible Taxation’s payroll tax proposal, pointing out that the 5 per cent would have been fully paid by the employer - not the employee.
He was responding after the Ministry of Finance yesterday issued a press release warning that Bahamian workers would “face grave reductions in take-home pay” if a payroll tax was implemented as an alternative to VAT.
Quoting Prime Minister Perry Christie, it repeated statements made by John Rolle, the financial secretary, to the Grand Bahama Business Outlook, where he suggested a 20-25 per cent payroll tax would be required to match the $500 million gross revenues projected from a 15 per cent VAT.
The release then referred to Mr Rolle, and Michael Halkitis, minister of state for finance, suggesting that the Government had “plugged payroll tax into a model”, with the results allegedly suggesting the reduction in employee ‘take home pay’ would have a greater economic impact than VAT’s projected 5-6 per cent cost of living increase in the first year.
“According to government’s figures, it would take a 16 per cent salary deduction to equal what a 10 per cent VAT rate across the board would generate,” the release said.
In response, Mr Myers told Tribune Business he was unsure what economic model the Government had used, as he was unaware that either it or the private sector had completed their VAT and fiscal reform studies.
“Until we’ve finished our study, we don’t know what the rate will be either,” Mr Myers said. “If we can get some data from the Government, we’re a week to 10 days away from completing our model, and then we’ll run a couple of scenarios through it and report back to them.
“We’ve got to conclude the economic studies. We’re about four weeks away from completion with all these things taken into consideration.
“If they’ve [the Government] got their modelling done, it would be nice to share that with the public. If they’ve done the modelling, share the numbers.”
The Coalition had proposed a 5 per cent payroll tax, to be fully paid by the employer and not the employee, as a short-term measure that would raise an estimated $190 million annually and help get the Government out of its $443 million deficit hole.
The private sector body had emphasised that it was neither a complete panacea nor a total long-term solution to the fiscal woes, and that it would not cost employees - something that Mr Myers suggested seemed lost on the Government.
“They’re still not absorbing what we said about a payroll tax,” he said, “that it’s not being paid by the employee. It’s paid by the employee.”
Mr Myers added that the Government was instead referring to something more akin to income tax, which “penalises the working individual” and thus dampened productivity.
“What’s easier to administer more efficiently? A 16 per cent payroll tax or a 10 per cent VAT?” he asked. “We’ve got to get through the economic studies to come to that conclusion.
“I think everyone understands that 15 per cent drags the economy and makes us uncompetitive. We think 15 per cent VAT, on top of everything else, will hurt the economy and make businesses uncompetitive.”
Mr Myers reiterated that the Government was still avoiding issues related to wider fiscal reform, and the need to improve compliance in the existing tax system.
He added that if Customs duty and real property tax compliance rates were increased to 70 per cent, from the current ‘below 50 per cent], close to $500 million extra revenues annually would flow into the Public Treasury.
“There’s a lot of talk about raising new money, but none about compliance, enforcement of the law and a Freedom of Information Act,” the Tax Coalition co-chair told Tribune Business.
“These things are critical to fiscal reform. It’s concerning that there’s so much emphasis on how to get more money out of law abiding citizens, and not enough about getting those who are non-law abiding to pay.
“And there’s reducing government expenditure, and living within its means, being more efficient and selling off entities that are a drag on the Government.”