College Hosts Debate On Vat

A BUSINESSMAN called for more taxes for the wealthy - including himself - during a meeting at the College of the Bahamas to discuss the Value Added Tax proposed by government.

Tennyson Wells - a former parliamentarian and president of the Source River Company Ltd - called for a moderation to fears over the proposed implementation of VAT and for the country to embrace the change that must come instead.

Mr Wells was one of four speakers at the forum held at the college on Tuesday evening. The others were Robert Myers, president of the Myers Group of Companies; Dionisio D’Aguilar, president of Super Wash Inc. and Rupert Pinder, economist and adjunct professor at the college.

“The poor are now carrying the major burden of taxation in this country,” said Mr Wells.

“People like myself and Mr D’Aguilar and Mr Myers – I don’t know about Mr Pinder – really pay very little tax… Value Added Tax is going to shift some of that burden off the poor to those who are making big money like Mr Myers, in particular, and most of them don’t want to do that.

“Those of us who could pay, should pay and we should pay more. We do not pay enough and that is a fact.”

The former Free National Movement parliamentarian, turned Independent representative, suggested that there was too much negativity clouding the national discussion about the implementation of VAT.

“You can’t operate and build your life on fear or refuse to accept that change will come; that is the only constant in life – change…and those who refuse to contemplate it and live with it and plan for it will fail. That is a fact. So I am not one of those who is afraid of Value Added Tax,” he said.

Acknowledging that tax reform is necessary in The Bahamas, Mr Wells agreed – like all of the speakers at the forum – that a cap must be placed on government spending.

Mr D’Aguilar, a member of the Coalition for Responsible Taxation, which has been calling for a deliberate analysis of the alternatives for taxation, painted an unfavourable picture of The Bahamas’ economy in a post-VAT environment. He also lamented the history of government borrowing that has contributed to the present conundrum.

“We are not a bunch of dumb people. Explain to us what effect this is going to have on our economy. It seems to me in my very simple mind that if you are going to jack 15 percent onto a price, your prices are going to go up, your salaries are going to remain the same. Government is going to get richer, but everybody else is going to get poorer and that is going to have a definite effect on my business and everybody else’s business,” Mr D’Aguilar said.

He also pointed to existing challenges in the efficiency of tax collection and the need for a more effective tax compliance regime, calling VAT a complex tax.

“I personally believe that there are simpler ways to do it. I personally support a payroll tax. It just seems a lot simpler,” he said. “…so as part of this fiscal reform, we have to figure out how tax compliance because that is a major, major issue.”

Mr D’Aguilar also called for a legislative cap on government spending which limits the debt to GDP ratio to 65 percent.

Rupert Pinder, an economist and former adjunct professor at The College of The Bahamas, acknowledged that The Bahamian economy is at a crossroads.

“The problem was not created overnight therefore the solution is not an overnight solution; it’s going to take time. There has been a lot of discussion with respect to Value Added Tax. That is only part of the equation; the VAT is not a panacea for the problem that we have. Why? The VAT is expected to generate a net revenue of $200m. Best case scenario, you have a $500m problem so it still leaves you with a deficit of $300m that you have to close with respect to that gap,” he explained.

Admitting that he is becoming a proponent of sales tax, he proposed that tax reform must be administered within the broader context of fiscal reform which strategically addresses expenditure improvements and tax collection efficiencies. Mr Pinder also drew a parallel between the current system of taxation in The Bahamas and the VAT, arguing that the latter is not radically different from the status quo.

He also raised another red flag.

“The other thing that is very troubling to me is our foreign currency borrowing and I wonder how many people are paying attention. Just recently this week, there was an announcement that the Central Bank is looking to the government to borrow US $400 million to service the debt. Most of the countries that find themselves in problems are when you look at the high proportion of foreign currency debt, but this is the position that we find ourselves in today,” he noted.

Co-chair of the Coalition for Responsible Taxation Robert Myers said that the Coalition is not anti-VAT but is merely calling for an examination of the details and facts and a responsible analysis. He explained that the coalition has secured the services of the Oxford Economic Group to research the effects of VAT on the Bahamian economy and feasible alternatives. The report should be completed by mid-May, he said.

“We understand that with the fiscal condition of the country there is no doubt the country requires tax reform. Where we differ is what the right answer is for that. The concern that the coalition has and my own concern frankly is that if we look at a number of indices there is reason for concern at the current intended implementation rate of 15 percent,” he said.

Mr Myers showed a table of purported expenses in a two-income household where each person earns an average yearly wage of $23,000. In the end, the wage earners were left in the red after the payment of consumer loans, utilities and living expenses. He reasoned therefore that with the imposition of VAT, the situation would be dire.

“The issue is there is no disposable income; there’s np disposable income before VAT and these people are not living high on the hog and they are earning what is considered an average wage. So after VAT, the question is where is that money coming from?” he asked.

Presently, an intricate web of import and export duties and tariffs are the primary sources of approximately 60 percent of total recurrent revenue for the Government of The Bahamas. VAT is a broad-based consumption tax assessed on goods and services. According to the government, VAT will broaden the government’s tax base, bringing services like those offered in restaurants and in the construction, legal and accounting sectors, more broadly into the net.


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