By NEIL HARTNELL
Tribune Business Editor
The Grand Bahama Chamber of Commerce has urged the Government to implement an income tax as a more equitable and progressive alternative to Value-Added Tax (VAT), with both personal and corporate income caught in the net.
The Chamber, in its recommendations to the Government on its proposed tax and fiscal reform programme, called for it to shift away from ‘regressive’ taxes, such as VAT and Customs duties, to those directly linked to a person’s ability to pay.
“VAT is a consumption tax and therefore will impact all consumers,” the report said. “Consumers at lower income levels will either have to consume less and, in some instances, may have to go without certain basic necessities, and hence stand to suffer the most deleterious effects of VAT.”
While the Government recognised this, having announced it will increase its social security spending by $30 million to counteract VAT’s negative impact on poor and lower income Bahamians, the Grand Bahama Chamber said this would also act to slash the surplus revenues generated by the new tax.
Implying that this merely confirmed the regressive nature of VAT, with lower income Bahamians paying a higher share of their income in taxes than their wealthier counterparts, the Chamber report added: “A fundamental tenet of prudent fiscal reform is that taxes should be assessed based on one’s ability to pay.
“Those with higher levels of income should bear the greatest tax burden. Conversely, those at lower income levels should pay fewer taxes. In other words, taxes should be ‘progressive’ rather than ‘regressive’.”
All this led the Grand Bahama Chamber to the following conclusion: “Rather than migrating from import duties, which are regressive in nature, to VAT, another regressive form of taxation, the Government should consider implementing a direct tax on individuals’ and companies’ income (direct income taxes) and significantly reduce, or even abandon, import duties and other tariffs.
“A shift to direct income taxes will ensure that the burden on the country’s lower income consumers is lessened, while at the same time it will broaden the country’s tax base.”
The Grand Bahama Chamber added that details revealed by ministers and officials in the VAT debate “confirm that successive governments have mismanaged the country’s economy over the past 18-20 years by allowing the debt-to-GDP ratio to increase by almost 90 per cent.
“Moreover, the crisis management measures now required (implementation of VAT and reining in of public spending) to arrest the burgeoning debt and to place the country back on a sound financial footing appear to be mandatory and not optional.”