By NEIL HARTNELL
Tribune Business Editor
A Tax Coalition co-chair is arguing that the Government’s attempts to debunk its payroll tax alternative are “disingenuous”, because it was never meant to match the $500 million gross revenues projected from Value-Added Tax (VAT).
Gowon Bowe, who is also a PricewaterhouseCoopers (PwC) accountant and partner, told Tribune Business that the $190 million projected from the Coalition’s proposed 5 per cent payroll tax was instead designed to match the forecast $200 million net revenue increase from VAT.
The Government’s plan is designed to also replace $300 million worth of Customs revenue that will be foregone when import tariffs are slashed simultaneously with VAT’s introduction, but Mr Bowe and the Coalition are questioning the need to do this immediately, and one-time.
While the Government’s VAT reform is designed to “get the whole hog” in one go, Mr Bowe again queried whether there was any pressure on the Bahamas to slash its existing import tariffs to such an extent, and in one swoop.
“There needs to be a clear indication of the timeline for Customs duty reductions, because if this is not immediately necessary in the [WTO] accession, there is time to reduce them over time and seek alternatives,” Mr Bowe told Tribune Business. “Let’s not be disingenuous with our actions.”
Mr Bowe told Tribune Business in a recent interview that the rules-based trading regimes the Bahamas is joining allow such Customs duty reductions to be phased in.
He added that there was “nothing” he had seen in either the Economic Partnership Agreement (EPA) or World Trade Organisation (WTO) rules that required nations to do away with such tax regimes in one fell swoop.
Mr Bowe, in his latest interview, told Tribune Business that the payroll tax was part of a “two-tier tax reform” process proposed by the Coalition for Responsible Taxation.
Its $190 million revenues were designed as a short-term measure to help immediately plug the $400-$500 million annual fiscal deficits the Government has been sustaining, and arrest the rate of growth in the $5 billion-plus national debt.
This, Mr Bowe added, would provide breathing space for the Bahamas to work out a comprehensive, sustainable and well-thought out tax and fiscal reform.
The payroll tax would thus replace VAT as a short-term revenue raising measure alongside Customs duties, which will be phased out over time.
“The payroll tax is not a panacea for VAT. It’s not the replacement,” Mr Bowe explained. “This is one of the alternatives allowing additional revenues to be raised while we construct the overall reform, given the need to reduce Customs duties over time.”
While tax reform is ostensibly being driven by the need to eliminate the Government’s recurrent fiscal deficits, and reduce the national debt, the Bahamas’ moves to join rules-based trading regimes is the other driver lurking in the background.
The likes of the WTO view import tariffs, and border duties, as a barrier to trade, and require member nations to remove them.
The need to raise $500 million, and replace the $300 million worth of duties, was yesterday cited by Michael Halkitis, minister of state for finance, for the Government’s likely rejection of a 5 per cent payroll tax as a VAT alternative.
And John Rolle, the Ministry of Finance’s financial secretary, last week suggested that a 20-25 per cent payroll tax rate would be needed to generate the $500 million forecast from VAT.
Mr Bowe, though, implying that the Government had either misunderstood or was misrepresenting the nature of the Coalition’s proposal, told Tribune Business: “We’re not trying to get the whole hog with a payroll tax.
“VAT is superior in their [the Government’s] mind as they’re trying to kill two birds with one stone.”
Dionisio D’Aguilar, Superwash’s president, also suggested to Tribune Business that the Government appeared to have misunderstood the payroll tax proposal, albeit from a different perspective.
Mr D’Aguilar said the 5 per cent tax rate was supposed to be fully paid by the employer, something Mr Rolle appeared not to have realised, as he was talking about a 20-25 per cent rate being paid by the employee.
“I think John Rolle and the Government are confused,” he told Tribune Business. “It wasn’t our intention that the employee pay this. The employer will pay the 5 per cent. I think they’re slightly confused on what we’re suggesting.
“We recognised that it was cheaper for employers to pay a 5 per cent payroll tax than 15 per cent VAT. It’s up to them to debunk the numbers that make up the $190 million.”