Value Added Tax (VAT) and Tax Reform in The Bahamas

By Dennis Dames:

We, the Bahamian people must realize that we cannot continue to borrow more than we are collecting in taxes.   We should appreciate as one people that something has to give now, as it relates to getting our fiscal house in order.  Either we increase taxes, or cut spending significantly.  We do not have years left to answer that question, and to take sound and prudent fiscal action, my brothers and sisters.

So, that is why we are debating the impending institution of value added tax in The Bahamas; to help us to live by a balanced budget until further notice.  This Bahamian has already accepted the reality that we need some kind of tax reform in The Bahamas, so that the government could collect more money on our behalf, in order to contain the outrageous deficit spending – year after year.

Our National debt is projected to officially double in the seven years; from $2.4 billion in July 2007, to $4.9billion to June of 2014 – coming-up.  The fiscal deficit for the past two years is reported to be more than $500.00 million.

It is a pity that the education process on the principles of value added tax (VAT) did not begin when the Bahamian government had signed on to the various international agreements years ago, like: the Economic Partnership Agreements (EPAs) with the European Union, and the World Trade Organization (WTO).   We know it was coming nonetheless, because the Progressive Liberal Party (PLP) and the Free National Movement (FNM) made it known that value added tax (VAT) is in the pipeline.  We went through the 2012 general election - recently, and the electorate voted overwhelming for the PLP and FNM.

So, what’s the problem?  Who’s shocked, who’s surprised, who’s outraged and who didn’t know that value added tax (VAT) was on the horizon?  The FNM has reminded us recently, that if they were elected in 2012, they had plans to employ value added tax (VAT) by 2015 or in thirty-six (36) months; the PLP plans to install value added tax (VAT) by July 2014 or in twenty-two months of their 2012 general election victory.

I think like the pundit, Dr. Gilbert Morris in the Turks and Caicos Islands, when he sounded in that nation’s context, that it was not that the TCI people are against value added tax (VAT), but it was felt nationally, that more time was needed to prepare the people for the realization of value added tax (VAT).  The United Kingdom was seen to be rushing the brush and had to eventually relent, in the wake of public pressure from every political house - and cancel the Turks and Caicos Islands’ value added tax kick-off date of April 01, 2013.

Our Prime Minister has said publicly, that he is open to delaying The Bahamas’ value added tax (VAT) execution date, which is scheduled for July of 2014.  It’s a great gesture, Mr. Prime Minister.  Now it’s time for all Bahamian people to face the music of looming tax reform in our country, and let’s start dancing and debating.  Our children and the generations yet unborn, deserve to enjoy the fruits of our wisdom.

November 13, 2013

Caribbean Blog International

White Paper On Tax Reform To Secure Adequate Revenues For The Future

Authored by:	Rt. Hon. Perry G. Christie
Source:	Ministry of Finance
Date:	February 14, 2013

A Value Added Tax Within A Reformed Tax System

In the 2012/13 Budget Communication, the Government announced that it would address the issue of tax reform as a means of broadening the tax base to include both goods and services.  To that end, a White Paper would be prepared and issued to serve as the basis for extensive public discussions and consultations.

The overarching objectives of the tax reform proposals in this White Paper are threefold, namely:

1. to secure an adequate revenue base in support of modern governance;
2. to establish a tax structure that promotes economic efficiency and stronger economic growth; and
3. to make the tax system more equitable.

As a means of achieving these objectives, it is proposed that a Value Added Tax (VAT) be introduced as of July 1, 2014 as part of a fundamental reform of the tax system.  In tandem, we also propose to:

• effect the eventual reductions in import duty rates that will accompany The Bahamas’ accession to the World Trade Organization (WTO);
• reduce excise tax rates to compensate for the VAT;
• eliminate Business Licence Tax as currently structured; and
• eliminate the Hotel Occupancy Tax.

Read more...

Comments can be directed to taxreform@bahamas.gov.bs.

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

Tax reform needed

thenassauguardian editorial



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 agreements (TIEA’s) 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 — by 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 OECD’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.

Jul 08, 2011

thenassauguardian editorial

Caribbean Blog International

The Bahamas needs tax and spending reform

By Youri Kemp:


I was listening to the news just recently, where Prime Minister Hubert Ingraham, who also is the Minister of Finance, said something to the effect that he would not lean against anyone broaching the issue of taxing the illegal numbers racket in The Bahamas, by virtue of taxing the internet cafés that are reportedly "fronts" for internet gambling businesses.

However, I'm not quite sure how easy it is to tax the numbers racket through internet cafés in The Bahamas. For starters, you have to have them recognize that they are, in fact, running illegal gambling out of internet cafés -- considering that the authorities have not been able to produce solid evidence in order to prosecute anyone allegedly gambling in these establishments.

Secondly, what about the internet cafés that are legitimate internet cafés? Can't tax them... can you? Lastly, if I am running an illegal gambling racket through an internet café, then why would I want to pay taxes to the government for something I have been getting away with for so long?

Even if you put the work out for companies to bid on a national lottery, you still would be left at square one with the internet cafés that run the numbers racket and their subsequent prosecution.

It is no easy task and good luck to the persons tasked with sorting it out.

More importantly, however, if we have come to a point where we are speaking in open forum about taxing the numbers racket, seriously, it signifies that the government feels that The Bahamas is at a juncture where it needs meaningful tax reform for government revenue; the government, clearly, is not generating enough internal revenue in order to meet its obligations now; and that the prospects of meeting the debt service, is very bleak with the current system of taxation.

To be very blunt: the government has to tax. However, the term "tax reform” isn't necessarily supposed to have a negative connotation or stand for a pejorative slight of hand.

The word "tax", does evoke personal sentiments for obvious reasons and the word "reform" -- especially used by politicians -- is a code word of sorts for the refocusing of entitlements and simultaneously as a buzz word for business persons, which signifies more and unnecessary regulation. Which to business people means more time away from their business and more time dealing with a governmental agency with mentally challenged employees.

To be fair, government employees aren't mentally challenged -- although some who look like they shouldn't be makes one wonder -- and everyone doesn't understand what reform signifies -- either which way -- and no one wants to pay more taxes.

The truth is, however, The Bahamas government is in debt to over 40 percent of GDP -- with a widening deficit. Another clear fact is that The Bahamas doesn't have any streams of government revenue, other than from import taxes (where it gets over 50% of its revenue), National Insurance contributions, revenue from public corporations and government agencies and also through forms of public service charges and real estate; i.e., vehicle registration and real property tax.

Conversely, the Bahamas's tax to GDP ratio is about 18 percent. Which isn't that bad, considering Barbados, Jamaica and Trinidad is at 32, 27 and 38 percent respectively. But, The Bahamas isn't just like any other Caribbean country -- we do things a little different.

Firstly, we don't produce many agricultural products for mass consumption in The Bahamas, neither do we have a large export sector in terms of people involved in exports, away from the concentrated profits some firms make.

Another concern that compounds the lack of efficient and beneficial dynamism in the market place as it relates to an optimal and targeted tax mix is the reliance of import tariffs for government revenue.

While The Bahamas does not produce over 80% of what it consumes, and with the tax system as basic as it is, it has to tax imports heavily. As a consequence, this puts consumers and more importantly, low income consumer, at a disadvantage as the tax burden is disproportionate to what they spend on taxes in relation to what larger corporations and high income earners pay. For example, a 50 percent flat tax on all consumer goods means more to someone who makes $20k per year than someone who makes $100k per year and a flat rate for business licenses, means more to the small business person than it does for a large corporation.

Moreover, large industries such as banking and shipping, are virtually untouched as it relates to taxation -- no capital gains or corporate tax. Even the export of fisheries products is untouched as they relate to export taxes.

Some may argue that these low taxes are the reason why these industries are so dynamic and successful. However, there is more to a successful enterprise than just low taxation -- location, barriers to entry and diversification, comparative and competitive advantages, come first and foremost for a successful enterprise.

More importantly, inequitable or no taxation, can be more destructive than high taxation. For political reasons, the need to keep such high-end entitlements incentivises corruption. Also, with regard to adequate funding for social programmes, people wishing to engage in such specialised enterprises face high entry costs that the consumer and subsequently the state ultimately must pay for.

Those additional barriers,decrease the tax base as persons begin to spend more of their disposable income in an effort to obtain the training and skills necessary to compete in and for what the marketplace offers, in addition to the high cost of private investment into such specialised enterprises.

What makes it worse is if the perception of risk through sacrifice made by individuals does not facilitate for the full cycle completion on endeavours. Or, the high cost for entry is private market based (cost for capital investment and cost for private education), where the government does not have a progressive, optimal tax mix and that tax mix model is not synergised to assist with the equitable development of the industry at all levels.

When such market failures occur, the government must spend on socio-economic policies that develop infrastructure and human capital.

Through all of this, I must state that the issues are more complex than just taxation. We need more bang for the buck and a re-engineering of our socio-economic programmes, in addition to doing more with respect to meaningful tax and spend policies that encourage economic growth, as well as lowering the private and public entry barriers to enterprise and skills training.

Before we begin the discussions on what forms of taxation we should have -- VAT, excise taxes, etc... -- or what types of spending we must endeavour, we must begin to frame the minds of citizens and add to the conversation of what the economic importance of tax and spending reform is and what that means to us all, as I hoped this article addressed.

April 19, 2010

caribbeannetnews

Bahamas Blog International