BAHAMIAN workers would face grave reductions in take-home pay if a payroll tax were implemented instead of a Value Added Tax (VAT), the three leading government voices in financial affairs, including the Prime Minister, agreed.
“You would need a payroll tax of 20-25 per cent to equal what a VAT of 15 per cent would generate,” said Prime Minister Perry Christie.
The Prime Minister was addressing a national conclave for Chambers of Commerce at Breezes on April 2.
Asked if the government had considered alternatives to VAT, the Prime Minister said absolutely, and was still listening to and talking with people. But a payroll tax would penalise the working individual, he said, a conclusion echoed by Minister of State for Finance Michael Halkitis and by Financial Secretary John Rolle.
Both said government had plugged payroll tax into a model, and the results showed the impact on the economy, including smaller take-home paychecks, would be far greater than the anticipated 5-6 per cent cost of living increase that will accompany the first year of VAT.
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 deduction would have to be between 20 per cent and 25 per cent to generate as much as a 15 per cent VAT rate would net.
“The net positive impacts (of VAT) outweigh the net negative impacts,” said Mr Halkitis, noting that the Bahamas still does not have capital gains tax, estate taxes, corporate or individual income tax.
Minister for Financial Services Ryan Pinder said the Bahamas remains one of the lowest percentage tax regimes in the world.
The Bahamas rate of taxation to GDP is 16 per cent, he said, while US taxpayers cough up 32 per cent of the gross domestic product in taxes every year.
“The real question,” said Minister of State for Investments Khaalis Rolle, “is can we afford not to do it?”
Warning of the increased scrutiny of credit rating agencies, he said: “It only takes one person, one suggestion that the Bahamas is not a good place to invest, not a safe place to put your money, and guess what happens – it not only impacts the government, it impacts everyone. We have only one chance to get it right.”