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Sunday, June 8, 2014
The Bahamas collects an estimated 40% of its tax capacity
Bahamas Near Bottom At 40% 'Tax Capacity'
By NEIL HARTNELL
Tribune Business Editor
Nassau, The Bahamas
The Bahamas is currently
operating at just 40 per cent of its tax capacity, the Government’s US
consultants have warned, ranking this nation near-bottom of 98
Compass Lexecon report, which the Government leaned on heavily to
produce its restructured 7.5 per cent Value-Added Tax (VAT), also
strongly backed the Bahamian private sector’s calls for greater
enforcement and compliance with the existing tax system, noting that
only 40 per cent of real property tax bills are being paid.
IMF has estimated that The Bahamas collects only 40 per cent of its
maximum attainable tax-to-GDP ratio as determined by the economic
structure of the country, a metric on which it ranks 92nd out of 98
nations,” Compass Lexecon said.
“In comparison, Sweden and Denmark collect 98 per cent of their tax capacity.”
will likely add fuel to ongoing private sector, and public, suggestions
that if the Government were to get existing tax compliance levels up to
international standards, and combine this with targeted spending
cuts/restraint, there would be no need for Value-Added Tax (VAT) or any
other new taxes.
Myers, the Coalition for Responsible Taxation’s co-chair, yesterday
told Tribune Business that the Bahamas’ tax compliance rates and ratios
were “skewed” by the fact the collective $285 million in annual
investment incentives is treated as revenue foregone.
acknowledging that compliance rates with the existing system were
“still lower than they should be”, he added: “Some of that is due to the
fact we have concessions, so concessions are factored in.
does take a hit because of the concessions given out to the hotel
industry and other investors. These concessions are counted as revenue,
but hurt our compliance.
makes it difficult to say what the true compliance is, but it’s still
low; lower than it should be,” Mr Myers added. “It does skew the
Government’s restructured 7.5 per cent VAT appears to be a model
produced from the amalgamation of Compass Lexecon’s report with that
produced by the two New Zealand consultants, Dr Don Brash and John
private sector’s efforts further buttressed these reports, and the
lateness of the Government’s decision is further highlighted by the date
on the final Compass Lexecon report - May 27 - the day before the
2014-2015 Budget announcement.
to the poor compliance/enforcement theme, Compass Lexecon said: “At
present, taxes in the Bahamas are regressive, inefficiently
administered, and apply to a very narrow base.
Bahamas is not realising anywhere near its potential revenue on
property taxes. The Government presently exempts the first B$250,000 on
owner-occupied housing and does not means test this exemption, while it
also gives breaks to hotels, timeshares, and other tourist-related
addition to having a narrow tax base, the Bahamian property tax is
inconsistently applied. Government property rolls have a coverage rate
of about 70 per cent, and the Government receives payment on only 40 per
cent of the property tax bills it issues. Enforcement against
non-compliance has been weak to non-existent.”
Government has repeatedly pledged to address this issue, and Michael
Halkitis, minister of state for finance, on Monday said another 1,000
properties had been added to the tax roll following the latest amnesty
for Customs, the Compass Lexecon report said it was investing $6.745
million over three years to re-engineer its business processes.
include the development of a new computerised system for the processing
of transactions, training for staff in the implementation of the new
trade agreements, the introduction of a new K9 unit, and the enhancement
of the existing marine unit,,” Compass Lexecon said.
measures are expected to improve enforcement capabilities, decrease
fraudulent activities, and reduce the cost of collecting revenue by 15
per cent.” To comply with World Trade Organisation (WTO) requirements,
the Bahamas is looking to reduce the weighted average tariff rate to 10
per cent - a drop of 15 percentage points.
US consultants also disclosed their belief that the original 15 per
cent VAT model, and estimates that it would generate a net revenue
increase equal to 2 per cent of GDP, “may not be necessary to put the
Bahamian Budget on a sustainable trajectory”.
immediate implementation of a VAT at this rate would substantially
reduce economic growth over the short and medium terms, which would
result in even higher unemployment,” Compass Lexecon said.
combination with other fiscal reforms, a VAT raising less revenue than
initially proposed - in the range of 1 per cent of GDP in incremental
revenue rather than over 2 per cent - should be sufficient to address
the long-term fiscal challenge, and would be substantially less of a
drag on short-term economic growth and employment.”
US consultants said this pointed to the option ultimately chosen by the
Government - VAT in the range of 5-10 per cent - with the “greater
flexibility” to increase this if more revenue was needed.
Lexecon said that with VAT raising revenue equivalent to 1 per cent of
GDP from 2015-2016 onwards, debt would start to fall by one percentage
point, growing to almost a two percentage point drop the following
this is only the case if all other deficit reduction measures are fully
implemented and achieve the targeted savings, and the economy grows as
expected,” Compass Lexecon said.
the most recent IMF projection shows debt-to-GDP falling by smaller
amounts than in the Government’s official projections. The IMF’s
pessimism largely results from the IMF assuming that the Government’s
other revenue measures (like property tax reform) raise significantly
less than the government projects.
sum, the target is achievable based on the Government’s current
projections and without a VAT of 15 per cent, but there is a real risk
that the extant measures discussed so far prove insufficient in
achieving the fiscal targets and a higher VAT will be needed.”