Key economic players and advisors have long contributed to debate on a restructured local tax regime, but the issue is getting renewed attention now that the International Monetary Fund has recommended that the Bahamas move toward a new system of taxes.
The IMF team – which was recently in town for its Article IV Mission – said in its report to authorities that it would favour measures such as the strengthening of property taxation through the reassessment of property values, increases in specific excise taxes, including taxes on gasoline, and rises in certain licensing fees while also simplifying their overall structure.
The IMF recommendation is not the first time the new system of taxation has been recommended, but there may be new support for the idea.
“I think we should move to a [tax system] which includes a combination of sales tax and custom’s duty,” said Dr. Gilbert Morris, executive director for the Landfall Centre for Financial Services and Trade.
A tax structure including both a sales tax and custom’s duty would have the dual advantage of allowing the government to collect custom’s duty at the point of entry, when goods are initially imported, and the added benefit of spreading taxes throughout the economy in the form of a sales tax, Dr. Morris said.
Dr. Morris said that in addition to being a more equitable system of taxation, the combination tax scheme would allow the government to achieve the same level of tax income.
“The reason for that is because [The Bahamas] has a $5 billion economy and the government collects 20 percent in revenue which is $1 billion. If you have a 5 percent custom’s duty and 15 percent sales tax it will add up to $1 billion,” he said.
Some business leaders have also said they support the idea of a sales tax. President of the Nassau Tourism and Development Board Frank Comito said a tax regime based on sales tax could have advantages for the country.
“A sales tax system could increase our income if we share the tax burden across other sectors of the economy that aren’t necessarily importing goods right now,” Mr. Comito said. “Presently it’s mostly imported items that carry most of the tax burden.”
Mr. Comito said, however, that any change to the tax system must not be taken lightly. He said moving to a sales tax system could impact other sectors of the economy, especially the tourism industry.
According to Mr. Comito, a sales tax could complicate the collection of hotel taxes in addition to possibly reducing the level of shopping by tourists.
“A sales tax system of taxation would have to be looked at from the point of view of duty-free shopping, which is so important to our tourism industry, to see what effect it would have on the level of tourist spending,” he said.
Mr. Comito said enforcement and collection issues are also important when considering any change to the system of taxation.
The IMF report also suggested a number of long-term, structural reforms for the economy. The IMF mission recommended reduced funding of public corporations and welcomed efforts by authorities to raise awareness among labour unions and the public at large for wage restraint.
According to the report, the recommendations could be implemented to help reduce the deficit to about $110 million or about 2 percent of the national gross domestic product in fiscal year 2003/2004, with a view to gradually reducing the deficit to about 1percent of GDP in fiscal year 2006/2007.
The Bahama Journal
