A top economist recently reiterated a decade-old call for the Bahamas to introduce a Sales Tax, warning the Government that its Value-Added Tax (VAT) plans were a mistake because “simplicity is key” to reform.
Ralph Massey, the New Providence-based author of numerous studies on the Bahamian economy, told Tribune Business that this nation’s “longstanding problems” in collecting all due government revenues made the “clarity” of proposed reforms even more vital.
Mr Massey, who wrote the 2003 Tourism Taskforce on Trade Liberalisation report, with input from numerous industry professionals, reiterated calls made in that report for the Government to introduce a Sales Tax as its tax reform centrepiece.
This would have been a simple levy paid by purchasers at the final Point-of-Sale, and the report set out a 10-year plan for its implementation and the phase-out of Customs duties, including the new tax’s expansion to cover the services sector.
Yet VAT, which is a tax levied on the ‘value added’ at each stage of the production chain, was rejected by Mr Massey and his fellow report contributors as too complex and an “unnecessary complication” for the Bahamas.
Mr Massey said: “The principal thing of any tax system here is that it would be helped by its simplicity.”
While the existing import duties/Excise tax system offered just that, Mr Massey acknowledged that its weakness – apart from being subject to trade liberalisation pressures – was the upfront inventory cost burden it imposed on importers and Bahamian businesses.
Asked whether he felt the Government was making a mistake in choosing to replace import duties with VAT, Mr Massey replied: “I think they are. I thought it [a Sales Tax] was simpler than the VAT.
“That’s it really in a nutshell. If you’re going the route of a VAT, then you get into complications.
“If this country has a difficulty collecting taxes, and they do, and it’s a problem and a longstanding one, the best thing is to avoid increased taxation and the system should be as simple as possible. That’s the way to go.”
Mr Massey added that a Sales Tax could still be imposed on services, which account for the bulk of Bahamian economic activity. And the tax could also be levied on the mark-ups service providers charged their customers, just like merchandise.
And, just like the current VAT proposal, the well-known economist said a Sales Tax could also replace much of the hotel/tourism industry’s tax structure, such as the room tax.
“If all services generated here, including the tourism industry, are included then you get the same degree of coverage that you got before,” Mr Massey told Tribune Business.
“If you introduce a Sales Tax on professional, tourism and medical services, then you pretty much cover the lot of them.”
While “more comprehensive”, Mr Massey added that by its nature VAT was more complex than a Sales Tax.
“Simplicity is the key,” he said. “You’ve got to simplify the collection process, and the country does not have a good record in collecting taxes.
By Neil Hartnell
Tribune Business Editor