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Coalition 'Somewhat Miffed' Over Gov'ts Payroll Tax Model

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Tax Coalition is “somewhat miffed” at the Government’ seemingly conducting ‘closed doors’ economic modelling to debunk its payroll tax proposal, its co-chair yesterday hitting back by arguing the was Jamaica’s “most efficient” form of taxation.

Robert Myers told Tribune Business that the Coalition for Responsible Taxation was “very surprised” to read a government press release, issued earlier this week, which said an economic modelling exercise had shown a 16 per cent payroll tax rate would be needed to match the revenues generated from a 10 per cent Value-Added Tax (VAT).

Neither the Coalition’s nor the Government’s fiscal reform impact models are yet finished, and the private sector body late Tuesday issued a comprehensive rebuttal to the Christie administration’s latest effort to dismiss the payroll tax proposal before studies are completed.

Top government officials, including Prime Minister Perry Christie; minister of state for finance, Michael Halkitis; and financial secretary John Rolle, have all publicly argued that high payroll tax rates would be needed to generate the revenue projected to be gained from their favoured VAT option.

They have also suggested that among the disadvantages of a payroll tax are that it would only tax wages and salaries, hitting working Bahamians, while missing commission-based employees and wealthy persons who gain their income from the likes of dividends and royalties.

Mr Myers, though, said such concerns were unfounded because both Jamaica and Bermuda had shown it was possible for Caribbean states to implement a payroll tax that covered more than just wages/salaries.

“It’s being done in other countries,” he told Tribune Business. “We have researched the way they treat it in their jurisdictions, and they cover it [dividends and commissions].

“We feel that’s [a payroll tax] not complicated, when you consider the complications of VAT. It is tricky but it’s done. The interesting point was that Jamaica said it’s their most efficient tax.”

In its statement, the Coalition said its estimate that a 5 per cent payroll tax (paid by the employer only) could generate $190 million annually for the Government was based on total salaries and wages in the Bahamas.

This figure was pegged at $3.8 billion, and derived from information reported by government agencies to external bodies.

“The proposed tax base was not limited to salaries and wages, and would include a much broader concept of earnings from employment,” the private sector group added.

“The Coalition has received definitions from Jamaica and Bermuda, which have such forms of taxation and the definition of payroll is quite broad and really determined by definition in the legislation.

“In countries in the Caribbean, the payroll tax has been found to be the most efficient form of taxation in terms of compliance and collection, when compared to other taxes administered in those same countries.”The Coalition added that unlike National Insurance Board (NIB) contributions, it was not proposing any ceiling for payroll tax payments, and its economic model would assess scenarios where the employer only, and employer and employee, paid it.

Mr Myers yesterday told Tribune Business the Government would have “pretty significant protection” when it came to due payroll tax payments, as it could link compliance to Business Licence renewals and employee access to NIB benefits.

And, by administering a payroll tax through NIB’s existing systems and infrastructure, Mr Myers said the Government’s costs would likely be much less than for the proposed Central Revenue Agency (CRA).

Mr Myers, though, told Tribune Business that the Coalition had been left “somewhat miffed” by the Government’s suggestion it had used an economic model to evaluate the payroll tax.

“It was very surprising to us to read that,” he told Tribune Business. “If they have a model, why can’t they share it with the public? Let’s be transparent.”

Referring to such a theme in its statement, the Coalition said: “A debate can take two basic forms – seek to demonstrate the merits of your argument against those with an alternate view, or seek to discredit the alternate view without substantive arguments in favour of your argument.

“The citizens of the Bahamas now, more than ever, require clarity in the discourse over fiscal reform and tax reform, and the debate should take the former form of debate. There is no benefit to discrediting alternate views, when a simple presentation of analyses performed would demonstrate the superiority of one alternative over another.

The Coalition reiterated that the payroll tax was only one part of its proposed fiscal solution, and was never intended as a ‘panacea’. It was intended instead as a short-term measure to “provide the necessary headroom” for the Bahamas to devise a longer-term solution.

Noting that the only economic model disclosed by the Government to-date was the Inter-American Development Bank (IDB) study, the Coalition added: “If there are other analyses and studies in the possession of the policymakers that were used to determine the rates at which payroll tax would be required, the Coalition would welcome receiving such studies and analyses to assess the validity of public statements, and to help guide its recommendations and proposals......

“Of equal importance, is that the debates continue to focus on fiscal reform and not solely tax reform. It has been said by many, including the senior officials in the Government, that the Bahamas cannot solely tax its way out of the fiscal crises we face.

“There must be equal attention paid to expenditure control and growth of the economy. Unfortunately, insufficient time is being devoted to those elements, and the Coalition’s goals and objectives are to continue to agitate for better compliance and collection of existing taxes, much improved expenditure control and fiscal reporting, and policies and initiatives that will spur economic growth,” the Coalition added.

“The end goal of all of us contributing to the debates over fiscal reform is, and must be, the improved fiscal position and performance of the Bahamas. As the clich� goes, if you are not a part of the solution you are a part of the problem.”

Mr Myers, meanwhile, said the Coalition and Bahamas Chamber of Commerce and Employers Confederation (BCCEC) were set to meet with the New Zealand government’s tax team - promised by Mr Christie earlier this year - next Wednesday.

“It’s positive, and hopefully they’ll give us a lot to think about, and hopefully we’ll give them a lot to think about,” he said.

“It’s a good opportunity fur us to talk to a small country, much larger than ours, that has had our challenges. We’re hoping it’s a full discussion of fiscal reform, what they did with WTO, tarde reforms, double tax agreements.”

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