Minister of State for Finance, Senator James Smith, concerned over an “unusually” large amount of duty-free concessions, said a restructuring of the Bahamas’ entire tax regime may be called for.
He told the Bahamas Chamber of Commerce’s 33rd Annual Businesspersons Award Banquet on Saturday, that from July 2001 to June 2002, the value of duty-free and other tax concessions was estimated at $350 million, including $206 million under the Hawksbill Creek Agreement.
Also adding to the total, Senator Smith continued, was $78 million under the Water and Sewerage Act; $25 million under the Hotels Encouragement Act and $11 million under the Electricity Act.
During the same period, he said, the total revenue collected by the government was in the region of $880 million, and when the value of the level of concessions is expressed as a percentage of the total revenue, it represents 40 per cent.
“It would appear on the surface therefore, that this is another important area of public sector policy which needs to be examined in our search to improve efficiencies in the economy in terms of resources allocation,” Senator Smith said.
He told the Chamber members and their guests assembled in the Atlantis Crown Ballroom that he believed that all would agree that improvements in how the public sector organises itself is a necessary, although not a sufficient condition, to overall improvements to the economy.
Highlight of the awards banquet was the presentation of Wendall Jones – “a leader in media”, as the 2003 Businessperson of the Year, and Lemuel Sweeting as the 2003 Developing Entrepreneur of the Year for his contribution to computer technology.
In his keynote address, Senator Smith observed that the provision of tax incentives to investors, local and foreign, is a widespread practice throughout the world, and in many instances it has led to real economic development and job creation.
“This has also been the experience in The Bahamas, and is likely to continue as a tool of economic development well into the future,” he said.
But, he said, the time has come to quantify all concessions, on a global basis, and compare the total value with the actual revenue collected, “so as to measure the intensity of our concessionary regime and ultimately, use the results as a basis for future policy in this area.”
Tax concessions are available under the following pieces of legislation: The Hotels Encouragement Act; the Industries Encouragement Act; the Spirits and Beer Manufacturers Act; the Agriculture Manufactories Act; the Electricity Act; the Ocean Industries Act; the Forth Schedule of the Tariff Act; the Broadcasting Corporation Act; the Hawksbill Creek Agreement; and, the Family Island Development Encouragement Act.
Senator Smith noted that the total government revenue represents about 20 per cent of the Gross Domestic Product (GDP), and this is considered to be on the low side in comparison with other countries.
Furthermore, he added, the majority of revenue, about 50 per cent represents tax on international trade or, more precisely, the application of import duties and stamp taxes on imports.
The senator also reiterated that the country’s current tax regime may have to be restructured so that any losses in import duties are compensated for through some other means.
“All former governments, and this government in particular, has made it clear that as a matter of policy, there will be no taxes levied on income or capital, nor would a tax regime be established that would adversely affect the competitiveness of our financial services sector,” he said.
And, he said, given the commitments in the public sector, together with the over-reliance on international trade taxes, which are potentially at risk within the context of existing international trade arrangements, “the time is now, not later, to seriously examine alternative revenue-raising measures.”
While accepting the urgency of the need to fully examine alternative revenue systems over the medium to long term, Senator Smith said it is equally important to focus on improving the current system of revenue collection.
In this vein, he said, the modernisation of the Customs Department will comprise studying recommendations for recruitment and training of staff; upgrading the organisational structure, improved documentation, upgraded computerisation and strategic amendments to the legislation relative to customs operations.
He said that if, and when, the plan is fully implemented and it is possible to measure any positive yields from the improved collection process, the government will then be in a position to evaluate the merits and demerits of the other forms of taxation such as sales and/or value added taxes (VAT).
In the same manner in which the Chamber of Commerce has set about educating itself regarding the implications for the private sector, vis-�-vis any change in the country’s external trade relations, Senator Smith said, the government should do likewise with respect to the public sector.
“It is important for both the private and public sectors to monitor, examine and re-examine those issues which have the potential to alter, in a fundamental way, the manner in which our economy is structured,” he said. “The tax regime is but one issue. I can think of others such as the need to consolidate and simplify regulatory practices in the financial services sector.”
By Lindsay Thompson, The Nassau Guardian
