PM, minister, financial secretary agree: Payroll tax not a viable option

Tue, Apr 15th 2014, 12:17 PM

Bahamian workers would face grave reductions in take-home pay if a payroll tax were implemented instead of a value-added tax (VAT), said three of the leading voices in financial affairs, including that of the prime minister.
"You would need a payroll tax of 20-25 percent to equal what a VAT of 15 percent would generate," said Prime Minister Perry Christie.
The prime minister was addressing a gathering of more than 100 people, ranging from those with farm interests in Abaco to consultants from some of the nation's largest businesses and the financial services industry at a national conclave for Chambers of Commerce at SuperClubs Breezes resort on April 2.
Most of his address dealt with the way forward for The Bahamas, and touched on subjects including the advancement of an international arbitration center and international aircraft registry, and the untapped potential of seabed products. He then turned to the ever-present topic of national conversation - the broad-based tax system the government proposes to implement to raise annual revenue by $200 million, in hopes of avoiding the devaluation of the Bahamian dollar.
Asked if the government had considered alternatives to VAT, the prime minister said absolutely, adding that he was still listening to and talking with persons from a wide range of perspectives. But a payroll tax would penalize the working individual, he said, a conclusion echoed by Minister of State for Finance Michael Halkitis and independently at a later presentation by Financial Secretary John Rolle.
Both men said government had plugged payroll tax into a model, and the results showed that the impact on the economy, including smaller take-home paychecks, would be far greater than the anticipated 5-6 percent increase on the cost of living, which is expected to accompany the first year of VAT.
According to the government's figures, it would take a 16 percent salary deduction to equal what a 10 percent VAT rate across the board would generate. The deduction would have to be between 20 percent and 25 percent to generate as much as a 15 percent VAT rate would net.
"The net positive impacts (of implementing VAT) outweigh the net negative impacts," said Halkitis, noting that The Bahamas still does not have capital gains tax, estate taxes, corporate or individual income tax.
And, according to Minister for Financial Services Ryan Pinder, The Bahamas remains one of the lowest percentage tax regimes in the region and in the world.
The Bahamas rate of taxation to GDP is 16 percent, he said, while other countries collect far greater percentages of their total product, including the U.S., where taxpayers cough up 32 percent of the gross domestic product in taxes every year.
"The real question," said Minister of State for Investments Khaalis Rolle, "is can we afford not to do it?"
Warning of the increased scrutiny of credit rating agencies, he said, "It only takes one person, one suggestion that The Bahamas is not a good place to invest, not a safe place to put your money, and guess what happens - it not only impacts the government, it impacts everyone. We have only one chance to get it right."

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