Pursuing tax reform
Nassau, The Bahamas
Given the fiscal performance of the economy over the past few years and especially in the midst of the global recession, it has become increasingly clear that the days of relying on customs duties for the majority of the government’s revenue are rapidly coming to an end.
The arguments against, and the analyses of, the current tax regime are as numerous as they are compelling.
The more often repeated reasons are that customs duty as a major source of government revenue has outlived its usefulness because the system is extremely insensitive to changing circumstances in the economy; it is unintentionally unfair and regressive in its impact, particularly on low-income households, and at best it distorts the orderly and efficient working of a market economy.
To which we can add: In the context of the predominantly retail and wholesale services sector of the Bahamian economy, it ties up too much of the cash flow in advance of the first sale or turnover of the imported goods.
Some have argued, rather convincingly, that consideration ought to be given to introducing a more progressive tax regime, such as the value added tax (VAT), a tax regime that is used in more than 170 countries and that is generally considered less onerous on low-income households and small businesses.
Since the tax is levied on both goods and services, it is believed that the government’s overall take could increase without having to increase the tax rate.
Indeed, there may be scope for reduction in tax rates and fees in some specific categories.
In a country such as The Bahamas, that has historically boasted of its distaste for imposing direct taxes on income, the VAT has a certain amount of appeal in the sense that it has the potential to increase the tax yield to government without having to concede its historical adherence to no tax on income.
Given the developments over the past few years with the removal of the veil of secrecy and confidentiality as regards to bank accounts in The Bahamas, and more recently the almost 30 tax information exchange agreements (TIEAs) signed by the government and other foreign jurisdictions, perhaps the time has come to re-examine tax reform in The Bahamas beyond the consideration of a VAT.
Consideration could be given to a broad-based or selective income tax regime which would permit the country to enter into double taxation agreements, and by so doing obtain tax income from foreign companies operating in The Bahamas without increasing the overall tax burden to those companies since — because of the double taxation treaty — the existing tax would be shared between our Public Treasury and that of the company’s home country.
Such a move could also provide added protection against the Organisation for Economic Co-operation and Development’s constant threats to destabilize the so-called “tax haven” countries.
A modern Bahamas must adopt modern ways of conducting its affairs, and if we are to contemplate a reform of our tax structure, we ought to look at all forms of taxation and select the most efficient and the most appropriate for the benefit of all Bahamians.
Apr 23, 2012