By NEIL HARTNELL
Tribune Business Editor
A Tax Coalition co-chair yesterday said he believes a Bahamian income tax will be “the subject of great discussion, if not already on the books”, within a decade due to it being the only equitable reform option.
Gowon Bowe told Tribune Business that while he “did not want to open the floodgates” to further talk of taxes with VAT already on the immediate horizon, the Bahamas would ultimately have to consider income tax if it wanted to link taxation to ‘ability to pay’.
Suggesting that a corporate income tax was unlikely because it would deter business growth, Mr Bowe said the personal variety was the option to take if ‘progressive tax reform’ was the Bahamas’ ultimate goal.
Many countries that had implemented Value-Added Tax (VAT), such as Barbados, also had some kind of income tax, and Mr Bowe said the National Insurance Board (NIB) system meant the Bahamas was “not so far away” from having one itself.
Yet he emphasised that, as with VAT, any income tax had to be accompanied by checks and balances on the Government’s spending - the likes of a Fiscal Responsibilities Act, Freedom of Information Act, and balanced Budget amendments.
“If you had to say ultimately where we will end up, if we want people to pay in proportion to their earnings, income tax is where we will end up,” Mr Bowe told Tribune Business.
“In my mind, in the next 10 years, if income tax is not accepted and put on the books, it will be a subject of great discussion.”
While income tax was largely viewed as the most progressive and equitable reform option for the Bahamas, it was rejected by the Government in favour of VAT for other reasons.
Income tax, with its annual filing demands on businesses and individuals, would likely be a great cultural shock for many Bahamians, creating immediate problems of non-compliance - both wilful and by mistake.
It is also seen as relatively complex and expensive to administer, and there are concerns that wealthier taxpayers would be able to either avoid or evade an income tax - once more transferring the burden back on to the lower and middle classes.
While ruling out any income tax “before the next election”, and possibly the one after it, Mr Bowe said it was likely “the only progressive and equitable” option open to the Bahamas.
While VAT would “broaden the base” by capturing services for the first time, Mr Bowe said it remained a regressive, inequitable tax similar to Customs Duties.
This is because VAT, as a consumption tax, will see lower and middle income Bahamians spend proportionately more of their earnings on taxation than the upper classes.
It was for this reason, said Mr Bowe, that countries implementing VAT also had an income tax because it was seen as “a balancing mechanism” for the redistribution of wealth to those on society’s margins.
With the Bahamas already possessing something akin to a payroll tax via the National Insurance Board (NIB), he added: “It’s just a matter of saying: ‘We want high earners to pay more’.
“Every country around the world is trying to tighten the net on tax evasion and avoidance, and get people to pay their fair share.
“Income tax, in some form or fashion, is the only progressive tax we can hang our hats on in the not too distant future.”
The timing, and need, for an income tax will also be dependent on how successful VAT is as a revenue-raising mechanism.
Mr Bowe said the Grand Bahama Chamber of Commerce, and others in Freeport, had already publicly stated that VAT was the “wrong route” to take. And he noted that one Grand Bahama-based MP, Gregory Moss, had also advocated for income tax during the VAT debate in the House of Assembly.
But, while it was likely the “voices will become louder” for an income tax, Mr Bowe emphasised that the Bahamas “cannot look to tax our way out” of the current economic and fiscal malaise.
Emphasising that increased revenues had to be balanced with spending controls, plus greater government accountability and transparency, Mr Bowe said he was wary of extending the debate to income tax.
“I don’t want to open the floodgates to any new form of taxation. We’ve already opened the gates to VAT, and have to ensure that anything else is accompanies by all the other elements,” he told Tribune Business.
“We’ve already let the horse out of the gate, and have to get these things behind it as quickly as possible. We can’t let them spend our money freely.”
Mr Bowe, though, suggested that there was little appetite in government circles for a corporate income tax that would be levied on company profits.
“I think there’s a maximum to revenue derived from taxes on business, and this would be detrimental to expansion,” the Tax Coalition co-chair said.
He was commenting after several private sector sources suggested that the extensive detail the Government was seeking from mandatory business registrants on the VAT registration forms was consistent with that required for an income tax.
Several businessman have privately voiced suspicions to Tribune Business that the Government is paving the way to ultimately introduce a Bahamian income tax by using VAT to uncover details on the inner workings of Bahamian companies
Mr Bowe, though, said the information sought by the VAT registration form was not inconsistent with what was demanded for Business Licences or filings with the Companies Registry.
The VAT registration forms require businesses to list all shareholders who have an equity stake equal to 10 per cent or greater, plus supply details on their branches and subsidiaries.
Pointing out that Business Licence forms asked for similar details on company principals and shareholders, Mr Bowe said: “I think they’re going to use the exercise to correlate as much information as they can on businesses, so they have a greater ability to data mine.”
The PricewaterhouseCoopers (PwC) accountant and partner added that the Ministry of Finance, and its VAT unit, would use the information supplied to check, for example, whether companies were part of “legitimate groups” and could register as the latter.
He added that the VAT registration form’s demands were fine “as long as they don’t go beyond what is publicly available”.
Mr Bowe said another issue was whether the Government should be pulling some of the requested information from its other agencies, rather than relying on companies to provide what they have already supplied.
He agreed, though, that the filing required with VAT returns would help prepare Bahamians for the “greater discipline” required with personal income tax returns.
“You have to get people used to filing. The practice of filing information is going to become more common with VAT,” Mr Bowe told Tribune Business.