The Coalition for Responsible Taxation has hit out at comments from top government officials that payroll tax is not a viable alternative proposal to value-added tax (VAT), suggesting that the government has misconstrued its position on the tax, and should show the basis on which it has formed its position that a payroll tax is not viable.
The coalition's comments, in a statement released to the media, have come after a media release on behalf of the government suggested that the prime minister, minister of state for finance and the financial secretary are all in agreement that payroll tax would not be not a viable alternative to VAT.
The release noted that, in a recent address, the prime minister stated that it would take a 20 to 25 percent payroll tax to equal what could be raised from a 15 percent VAT, and a 16 percent salary deduction to equal the revenue raising impact of a 10 percent VAT.
Both the prime minister and Financial Secretary John Rolle have suggested separately that the impact on the economy of implementing such a tax would be far greater than the five to six percent cost of living increase that is expected to accompany the first year of VAT.
In a release addressing the government's comments in this regard, the Coalition for Responsible Taxation suggested that the government was taking a position without providing the necessary evidence to support it.
"A debate can take two basic forms - seek to demonstrate the merits of your argument against those with an alternate view, or seek to discredit the alternate view without substantive arguments in favor of your argument. The citizens of The Bahamas now, more than ever, require clarity in the discourse over fiscal reform and tax reform, and the debate should take the former form of debate. There is no benefit to discrediting alternate views, when a simple presentation of analyses performed would demonstrate the superiority of one alternative over another."
Contrary to the suggestion by those seeking to debunk the viability of payroll tax as an alternative to VAT, the coalition stated that payroll tax is but one of the proposed alternatives suggested by the coalition, and it was never intended to be a "comprehensive solution" to making up all of the revenue lost from import duty reductions and addressing rising government debt.
Instead, the coalition said it would be an "easily administered form of tax" that could be implemented quickly, in the short term, to "provide the necessary headroom in timelines to devise a comprehensive fiscal reform plan, which is palatable to the citizenry".
The group said that payroll tax has "been found to be the most efficient form of taxation in terms of compliance and collection" in the Caribbean context, and the cost of administering it would be "minimal" in comparison to VAT.
Going into how it had calculated the projected impact of a payroll tax, the coalition said that its projection that the tax could raise $190 million for the government was based on the estimated total salaries and wages in The Bahamas from information gathered from government agencies, which was reported to various external agencies. The estimated salaries and wages amounted to $3.8 billion and, at 5 percent tax, the sum would equal $190 million.
It added that it had used a proposed tax base that was not limited to salaries and wages to include a much broader concept of earnings from employment, based on definitions from Jamaica and Bermuda, "which have such forms of taxation and the definition of payroll is quite broad".
Turning to the government's suggestion that it has run its own analyses of the viability of payroll tax as an alternative to VAT, the coalition said it has repeatedly requested from policymakers access to "any analyses and studies conducted in assessing the merits and demerits of VAT and alternate forms of taxation."
"To date, we have only been provided the Inter-American Development Bank (IDB) study, which was completed in the fall of 2013. This was not a forecast model and only analysed VAT. If there are other analyses and studies in the possession of the policymakers that were used to determine the rates at which payroll tax would be required, the coalition would welcome receiving such studies and analyses to assess the validity of public statements and to help guide its recommendations and proposals."
Meanwhile, the coalition said that the debate must focus not solely on tax reform but also fiscal reform.
"It has been said by many, including the senior officials in the government, that The Bahamas cannot solely tax its way out of the fiscal crises we face. There must be equal attention paid to expenditure control and the growth of the economy. Unfortunately, insufficient time is being devoted to those elements and the coalition's goals and objectives are to continue to agitate for better compliance and collection of existing taxes, much improved expenditure control and fiscal reporting, and policies and initiatives that will spur economic growth," said the coalition.
"As Bahamians, we must all agree that sacrifices must be made, but equally, we must all challenge decisions and policies being proposed to ensure that they are well-researched, documented and thought out; and our policymakers must respect that their decisions can be challenged, and the best means of garnering support for the decisions is to present the facts and empirical analyses that clearly demonstrate the superiority of their chosen course," the group added.

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