By NATARIO McKENZIE
Tribune Business Reporter
The Government would have to implement the private sector’s favoured payroll tax at a rate between to 20-25 per cent to hit its revenue targets, the Financial Secretary saying this meant the average Bahamian worker would see more than $200 per month taken from their salary.
John Rolle, assessing the payroll tax alternative that has been proposed by the likes of the Coalition for Responsible Taxation, told the Grand Bahama Business Outlook conference that the Government would be working with a much smaller tax base than that for Value-Added Tax (VAT).
This, the top Ministry of Finance official explained, was because a payroll tax would not be levied on the total amount of income that is earned in the Bahamas.
“The Government needs to be able to generate $500 million gross revenue,” Mr Rolle said of its tax reform target.
“The payroll tax rate would have to be between 20 to 25 per cent, meaning that the average worker would be required to provide the Government, on a yearly basis, with between $2,300-$2,800 to fund the fiscal correction or revenue needs to the same level that’s being proposed at the VAT rate. This is without making any adjustments to who is exempted or not.”
Mr Rolle added: “Naturally we would want this to be a little bit progressive, so you would probably look at the very low wage earners and you remove them; and look at the fact that we have a ceiling on NIB contributions, so we would probably throw that out.
“So it means that for most of us who are left to pay the payroll tax, the most we would be taking out of our salary on a yearly basis would be more than the $2,800, which means definitely more than $200 per month per average worker.”
The Coalition for Responsible Taxation has proposed a 5 per cent payroll tax as its main alternative, believing NIB’s existing collection infrastructure would make it less costly to administer than VAT.
Gowon Bowe, the Coalition’s co-chair, has previously estimated that a 5 per cent payroll tax will generate $190 million in extra government revenues annually. This, the Coalition pointed out, would match the net $200 million increase the Government is projecting to earn from VAT - largely through catching services in the tax net for the first time.
However, the $300 million balance expected to be generated from VAT is designed to replace existing Customs duty revenues. The Government is planning to lower import tariff rates simultaneously with VAT’s introduction, and its impending accession to full World Trade Organisation (WTO) membership is also influencing this process.
While a 5 per cent payroll tax would cover the net revenue increase projected from VAT, the Coalition’s proposal would not match the import duty reduction, although Mr Bowe recently questioned whether there were any WTO pressures that required this be done immediately.
Mr Rolle, meanwhile, told the Outlook conference that if the Government ultimately chooses to reduce the planned 15 per cent VAT rate, it would mean a smaller reduction in Customs duty rates.
“It may not be 15 per cent at the end of the day, but the Government can’t ignore the fact that it has to find a way to get sufficient resources to reduce its debt level,” Mr Rolle.
“If the Government chooses a lower rate, it has to mean immediately that the Government cannot forfeit the same amount of Customs duty revenue as it would with a 15 per cent VAT rate, otherwise it would be putting itself into a deeper hole.
“Any re-balancing of the VAT rate must show that the Government is not going into a deeper hole in terms of its overall Budget situation.”