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Vat A 'More Fair Regressive Tax'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Tax Coalition’s co-chair yesterday hit back at “misleading” government assertions about Value-Added Tax (VAT), producing a hypothetical example (shown here) where a middle class family paid - as a percentage of their income - 62 per cent more tax than their wealthy counterparts.

Robert Myers, responding to what he described as suggestions by the Ministry of Finance that VAT would be a fair tax for both wealthy and lower income Bahamians, said the reality showed it could not be sold as such.

He told Tribune Business that it might be possible to brand VAT as “a more fair regressive tax”, and better than the existing Customs Duty regime in this regard, but it was still a system where lower income Bahamians would pay proportionately more of their income as tax.

Mr Myers said he was responding to a Ministry release this month, in which it was implied that VAT would result in wealthy Bahamians paying more tax than their poorer counterparts, due to their greater consumption of services - which are now taxed.

But, drawing on an example of a wealthy family earning $300,000 per annum, and a middle class family earning $50,000, Mr Myers said he could show this was emphatically not the case.

Breaking both households’ spending down into expenses, disposable income and savings, and then applying 15 per cent VAT to the former two, Mr Myers said the results showed the middle class family would pay 12 per cent of their income in tax, while the wealthy one paid just 7.4 per cent.

And, in turn, the example he came up with showed that VAT would effectively “wipe out” the middle class family’s savings, and much of their disposable income.

Mr Myers said while the wealthy may pay more tax than the poor in terms of dollars, the amount of tax the wealthy will pay as a percentage of their income is significantly less in relation to the poor.

“In the example here, the middle income family will pay 62 per cent more tax as a percentage of their income than the higher income family on VAT alone. The example doubles the expenses of the higher income family and assumes they will spend 15 times’ more disposable income than the middle income family. “

Acknowledging that he was using “some pretty broad numbers”, Mr Myers said VAT’s effect was the same as under the current regressive Customs duty structure.

And he expressed “the fear” that VAT’s implementation would result in reduced disposable incomes and living standards for many Bahamians, causing consumer spending to contract and lowering business incomes, resulting in a vicious cycle of lay-offs.

Referring specifically to government workers, who officials say have an average 70 per cent debt burden as represented by monthly salary deductions, Mr Myers said: “The Coalition has repeatedly expressed its concerned that the average citizen, with an income of $24,000 per earner and debt levels of 70 per cent, simply will not be able to meet their debt obligations and sustain any reasonable standard of living.

“It is from this concern that the Coalition warns the public, businesses and the Government that if the consumer fails, businesses will fail, and when businesses fail unemployment will go up, and when unemployment goes up crime will go up.

“If this happens, the Government may collect less revenue and may be faced with increased social burdens and civil unrest, and at that point, it will not have the financial means to combat any of the problems.”

Using the $24,000 and 70 per cent debt servicing ratio, Mr Myers estimated that this would leave Bahamians labouring under such a burden with $138 per week in free cash flow for spending on food, clothing and utility bills etc. This, he added, would likely fall to the mid-$120 range under VAT.

“You can’t see it as a more fair tax,” Mr Myers told Tribune Business of VAT. “You might be able to say it’s a more fair regressive tax. You can’t say it’s not regressive; it’s just like duty. It may be less regressive than duty, but it’s still regressive.”

Suggesting that middle class disposable income may get “wiped out”, he added that their expenses would “jump” under VAT due to the tax being added to rental payments, electricity and gas.

As a VAT alternative, Mr Myers said the Coalition’s proposed payroll tax would levy a 5 per cent tax on pay, “and all employed would be taxed evenly”.

He added: “As proposed, the payroll tax would be absorbed by the employe,r but even if it were paid by the employee it would still result in the middle income family paying the same as the wealthy and 7 per cent less than the proposed VAT regressive tax would demand”.

And Mr Myers said: “The Coalition advises the Government to put its house in order before it attempts to divert the public’s attention to VAT, and the levels of taxation between wealth classes.

“We must correct the underlying paramount problems of excessive government spending, accountability, compliance, freedom of information, enforcement of the rule of law and collection of existing taxes.

“Numbers and statistics can always be made to look favourable to those that don’t choose to question them, but the real issues will not go away and these are that Government spending is excessive, and fiscal reform is critical to our ongoing stability and success as a nation. No Government can tax its way out of debt; many nations have tried and failed.”

He added: “The Coalition strongly encourages the Government to work with the private sector on all issues of fiscal reform, and to show the public that it is prepared to change the status quo that has led us to this fiscal disrepair over the last 35 years.

“This is not the Government’s problem alone, it is our collective problem, and all citizens of the Bahamas must realize that we need to wake up and address it before it before it threatens our standard of living even more than it has already.”

Comments

ohdrap4 6 years, 2 months ago

That fairer argument is a fallacy.

There would be more truth to it if food, beverages, medical supplies, electricity were not vatable.

That way, the increase in items at the food store would be restricted to the rise in input cost to the business.

It borders on criminal to tax food and electricity when the bahamas suffers very high costs in these items already.

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Honestman 6 years, 2 months ago

It is totally apparent that if VAT is introduced at 15% the vast majority of consumers will consume less to keep within their existing tight budgets. Government revenue is unlikely to grow by very much as a consequence. In fact, it may even go backwards as many small businesses may decide to close. You don't have to be a rocket scientist to work this out!

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proudloudandfnm 6 years, 2 months ago

After BTC, the referendum, the mortgage relief debacle, the failure to protect Bimini Bahamians need to demand Perry steps down. We cannot let this PLPL party implement a new tax structure, they are completely incapable of doing it. They are incapable of doing anything. Perry Christie's PLP is a laughing stock, we must somehow take power from them. We cannot allow these amateurs to screw up our country anymore than it already is...

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