by Rick Lowe
On Thursday and Friday, October 25 and 26, 2012, The Bahamas will be treated to what appears to be a one-sided "discussion" (read predetermined outcome) recommending a Value Added Tax (VAT) as necessary to get the revenue government wants because as most of the presenters are expected to say, the present tax regime simply cannot supply the revenue required.
Visit their web site here… http://www.nationalsymposiumontaxreform.com/
Seldom, if ever, is the fact that government spending is the problem noted and needs to be brought under control.
While at the end of the day, the experts might agree that a VAT is the best alternative, it really does not matter if the current system is retained or not because the crucial point is controls must be placed on the governments ability to tax, spend and borrow with reckless abandon, (as successive governments have been wont to do since Independence) before any change is attempted.
There simply has to be guarantees that the tax system will kept as simple as possible with minimal regulations so the economy is not stifled any more than it is today. That is if economic growth is a consideration.
The Government of The Bahamas has increased in size and spending exponentially since independence in 1973, and then borrowed what it over spent so Bahamian citizens are now in debt as a result to the tune of over $4.5 billion.
The debt levels have increased to such an extent that Bahamians should be concerned that future generations will not enjoy the standard of living so many people have over the last two or three generations.
According to the KPMG Barbados review of the 2011 Budget there, government spending has outpaced revenue consistently, and not by marginal amounts. See: http://bit.ly/mUp5Vs (pdf)
The population of Barbados is around 300,000 with a GDP of around $6 Billion (about 2/3 of The Bahamas), but their debt level is close to 100% of GDP!
And guess what? They pay a VAT (17.5%), Personal (33% Avg) and Business/Corporate (25%) Income Tax and Import Taxes from 40% to 150% or higher.
It appears that Barbados, a frequent example offered up for The Bahamas to follow, has a spending problem worse than The Bahamas Government, and all the various taxes imposed have only made the burden for Bajan's more difficult.
More than likely the argument on Thursday and Friday will be that import taxes are regressive, where the poor pay more in taxes as a percentage of income than the middle class or rich do and they are protectionist.
There is a valid consideration though that the poor spend most of their money on food, and the prices for most staple items are controlled by legislation. And the middle and upper classes have more disposable income to spend on luxury items, and hence bear more of the tax load.
While import taxes can be used as a protectionist tool, that is not the general case in The Bahamas as there is a very limited manufacturing segment.
One advantage to import taxes, or what is called excise taxes today, is that it is difficult for the Government to increase them any more without Bahamian taxpayers noticing the increasing burden.
Obviously this is not a simple matter and will take tremendous political will to implement a new tax system. Something must give, but government spending and borrowing must be controlled before the country ventures down the slippery slope of changing the tax system.
To summarise:
- Government spending is the problem, not lack of income.
- The present tax policy is not a bad one.
- If The Bahamas must change the system, it must be kept as simple as possible. And,
- The country must legislate limits on taxing, borrowing and spending.
Reference: http://bit.ly/T8KChQ
Rick we agree on some of how you summarized this dilemma, government spending is out of control,but, the Bahamas has to commit to a income tax and value added tax, and of course reduce tariff’s on goods and consumables, it’s just not fair and progressive to those not in the top wage groups, the Barbados model is flawed, they have had governments for years that have overspent and over borrowed. Rick I’m almost sure this will end up as a grandstanding with lots hand and finger pointing for the masses, and it’s a pity, change is needed.
Thanks Ken, but there is nothing “progressive” about taxation in any form. That’s another abuse of language.
A general sales tax for The Bahamas is a ‘no-brainer’, in my humble view. As my previous Blog (03-Sep-12) pointed out, the conversation planned for 25/26-Oct is one that should have culminated a long time ago:
http://www.weblogbahamas.com/blog_bahamas/2012/09/one-little-country-facing-many-giant-evils-the-paralysis-of-political-indecision.html
My sense is it will not a discussion. It’s set up to be a monologue for VAT.
Nobody seems to be arguing against this, so I must concur that this symposium is a foregone conclusion:
The Need For Tax Reform
Thursday, October 25, 2012 7:45 PM to Thursday, October 25, 2012 8:05 PM
“A National Perspective” and “An International Perspective In Terms of Sovereign Credit Rating Agencies”
The Desired Outcomes of Tax Reform
Thursday, October 25, 2012 8:25 PM
to Thursday, October 25, 2012 9:05 PM
“Implications for Development”, “Regional Perspective” and
“Spelling Out The Options For Tax Reform”
The Options
Thursday, October 25, 2012 9:25 PM
to Thursday, October 25, 2012 10:20 PM
“Factors To Be Considered When Reforming Your Tax Regime”,
“The Options For Tax Reform, Compliance with International Trade Arrangements and International Realities Designed To Promote Transparency”, and Question & Answer Session
The Realities Confronting Change
Friday, October 26, 2012 10:00 AM
to Friday, October 26, 2012 1:00 PM
“A Full Understanding of Existing Revenue Sources”;
“VAT: The Option, Administration and Challenges of Transition”;
“Some Reasons For Tax Reform in The Bahamas” ;
“VAT” Evaluating The Options For Tax Reform
Friday, October 26, 2012 7:30 PM
to Friday, October 26, 2012 9:30 PM
“Implementing VAT: Shortfalls and Challenges”;
“The Role of Tax in Building a Successful and Sustainable Financial Services Sector in The Bahamas”; “Managing Change for Sustained Economic Growth”;
“Question & Answer Session”;
“Closing Reception”
Couldn’t resist this quote. It’s long, but delivers quite a punch:
“In twenty-two centuries men do a lot of thinking, and out of this cerebration come new ways of doing old things. Like Dionysius, latter-day politicians sometimes find themselves without the wherewithal needed to defray the costs of glorious State adventures and, having stretched taxation to the breaking point, resort to borrowing. They convince the citizens not only that their savings will be spent in ways that will redound to their benefit, but that they will be rewarded for their faith with an annual increment; the imposingly printed receipt issued to the lender solemnly pledges the honor of the State to that effect. Now, in one way or another, these receipts become monetized, and Society is deluged with new coin of the realm, even as were the Syracusans when their drachmae were restamped. Everybody is “enriched.” This modern financial wizardry is a vast improvement on Dionysius’ method in that it conveys the impression of an honest business transaction, not a swindle.” Frank Chodorov, The Rise and Fall of Society. 1959.
Seems to me that a very big part of the problem is government spending.It also seems to me that the government is hell bent on closing the country down with their very high taxes.I would bet that whatever they do,they will still leave the duty in place at high rates,even if they call it something else.Small business is on hold,waiting & watching both here and the USA.They want to grow,they want to hire but are deathly afraid of what the government will do to them with taxes.I went in my own business eighteen years ago for myself & my family,not to work for the government.