Minister of Financial Services Ryan Pinder yesterday dismissed a recommendation from tourism leaders that the government should roll out a shared payroll tax as an alternative to value-added tax (VAT), explaining that the former is "regressive".

Pinder's comments came after hotelier Robert "Sandy" Sands told Guardian Business that tourism leaders will soon present a five-point "smart tax plan" to the government. The plan will include a recommendation that the government tax web shops as a way to improve revenue and institute a shared payroll tax of five percent, paid by both employer and employee.

Sands said tourism leaders believe that taxing web shops along with the creation of a payroll tax is the best option for the country at this time.

However, Pinder said a payroll tax is not the best model to achieve revenue growth because it is easily manipulated.

"In other words, those who are employed, generally the poor, the middle-class and under, are the ones who are receiving salaries," Pinder said.

"Those who have companies and businesses of their own generally can avoid a payroll tax by receiving distribution of profits, which is not payroll.

"If you take it all the way down the line and say let's tax distribution and dividends to address the manipulation, you then have a very adverse effect on the financial services industry and the professional services industry that are in The Bahamas."

Tourism leaders also believe VAT will be harmful to the country's number one industry.

"The government's current value-added tax proposal, we believe, would be damaging to tourism, the lifeblood of the Bahamian economy," Sands told Guardian Business on Sunday. "The government's current proposal has failed to position tourism, our most important industry, for global competition."

Sands noted that tourism accounts for more than half of all Bahamian jobs.

However, Pinder disagreed with this argument.

He said that nearly every country with a successful tourism industry has some sort of consumption tax in its economic model, which has not damaged their respective tourism sectors.

Pinder added that the government has seen taxes from the tourism sector diminish because hoteliers are finding ways to garner revenue outside of traditionally taxed areas.

He said the government's planned tax reform, with the introduction of VAT, is a way to address the issue.

"We've seen the tax base, with respect to the tourism product, shrink because hotels and hospitality companies have found other ways to earn revenue that aren't connected to the tax," Pinder said.

"In other words the price per room, whether it be in facility fees, access fees, food and beverage fees - those are not necessarily caught in the hotel tax regime."

Pinder said the government welcomes alternative tax suggestions from the private sector, but noted these recommendations must also consider the effect on the economy as a whole.

Pinder recently came out in support of the regulation of a "domestic electronic gaming industry" to allow Bahamians to gamble legally while increasing government revenue.

He sees this as an alternative tax model that could possibly allow the government to introduce VAT at a lower rate than the proposed 15 percent.

Last month, he said it is estimated the government could take in between $20 million and $100 million annually in taxes from a regulated sector.

While giving a recent contribution in the House of Assembly, Pinder said the money that could potentially be garnered from a regulated domestic gaming industry could "significantly impact the fiscal well-being of The Bahamas and alleviate any pressure from multilateral institutions".

He added: "Given what I have detailed, I think the creation of a domestic electronic gaming industry, owned by Bahamians where Bahamians would be permitted to gamble on games approved by a regulator, the Gaming Board, is worthy of consideration.

"The imposition of anti-money laundering regulations and requirements on these establishments consistent with international best practices would be required," Pinder said last month.

"The taxation of these institutions and the winnings could well result in reduced taxes and a reduced cost of living for all Bahamians." The government plans to roll out VAT at a rate of 15 percent in most cases and 10 percent in the hotel sector on July 1.

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