Studies commissioned by the government and the Coalition for Responsible Taxation have reached different conclusions about which tax would be most appropriate as the centerpiece of tax reform for The Bahamas, Guardian Business has learned, with U.S. economists pointing to value-added tax (VAT), while global forecasting and quantitative analysis firm Oxford Economics has highlighted payroll tax as the ideal way forward.
The government has been advised by its U.S.-based consultants, who were commissioned earlier this year to produce a report on VAT and possible alternatives, that value-added tax is the "best option" for The Bahamas when it comes to its ability to impact "growth and development" in the country.
"What their study says is, as have most of the vast majority of studies by economists and financial people, is that if you were to rank taxes based on what is most efficient and what leads to the growth and development of an economy, VAT ranks second only to property taxes," said Minister of State for Finance Michael Halkitis. "Things like payroll tax and corporate income taxes rank further down in terms of efficiency and fairness on any measure.
"And so that is what they have advised us, which reiterates the report of the Inter-American Development Bank (IDB) and numerous other reports that we have received," said Halkitis.
Speaking to the outcome of that study yesterday at a press conference to announce efforts to modernize the Customs Department, Halkitis said it is now only "left for us to settle what the rate is, what the timing is, and as well to make sure that people are ready for it and that speaks to public education which you will see accelerated when we make those final decisions".
Halkitis said that a final decision on when VAT will be implemented will be publicized "very shortly". Another report provided to the government, that of the New Zealand consultants, pointed to a January or April 2015 implementation date, and Halkitis has previously stated that this is something the government is considering.
The results of the U.S. consultants' study have been received by the government recently, as has a draft summary of the results from the coalition's study conducted by U.K.-based consultants Oxford Economics. Halkitis would only say yesterday that he did not wish to pre-empt the study, as the government has committed to not releasing the details until the coalition has a chance to publish its final report.
"I want to respect their wishes and leave it up to them to bring it into the public domain," said Halkitis.
However, Guardian Business has learned from sources close to the matter that the coalition study has recommended that a payroll tax would be the most preferable form of tax for the country, with the least negative impact on growth and costs to business.
Speaking after the press conference, Halkitis suggested that the government believes it has compromised in its stance on VAT, as requested.
"If you look at the advertisement (the Coalition for Responsible Taxation's slogan) it says, 'demand a delay'; okay, well you got it. You got a delay. We think that is a concession. It said 'demand alternatives'; well we've studied the alternatives and the prime minister has, I wouldn't say allowed, but facilitated in terms of having the Ministry of Finance provide them with all the information they asked for, adjusting our timetable to accommodate their study to look at alternatives."
He said the government is now going to have its U.S. consultant review and make comment on the findings and assumptions in the coalition's study before their final study is released, in order to gain an independent review of the coalition's position.
Halkitis said that the multitude of meetings, discussions and the decision to wait for the coalition's report has been part of a process of "negotiation, conciliation, buy-in and harmony" pursued by the government with respect to tax reform.
"We think we can come to a position, we're confident we can come to a position where not everyone may be happy, but everyone recognizes that of the options available to the government when we talk about taking control of the finances of the government, this is the best one."

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