From the hints being dropped in recent weeks by key government officials, the 2003-2004 budget is likely to include significant new initiatives for revenue collection.
In fact, according to one of the principal architects of the government’s spending plan – set to be revealed on May 28 – the time is now, not later, to seriously examine alternative revenue-raising measures.
This sense of urgency comes as the country currently has observer status at the World Trade Organization, is actively engaged in the Free Trade Area of the Americas process and has under consideration cementing its ties with CARICOM.
All of these international and hemispheric trade organizations expect their membership to restructure their economies to become more competitive, more transparent and to eliminate discriminatory practices in the area of taxation and licensing.
It’s a reality that has experts in the area of fiscal engineering more aggressively looking at a complete examination of the structure of taxation in The Bahamas with a view to making recommendations for an overhaul that would ensure that government revenue is not adversely impacted by any fundamental changes.
Minister of State for Finance James Smith has pointed out that if The Bahamas participates in those international trade arrangements, over some period of time, there will be a requirement to scale back and in some cases, eliminate the taxes on international trade.
But what are the options?
It’s an ongoing debate with some business leaders supporting value added taxes and others supporting income taxes. There’s also a smaller number that would like for The Bahamas to “resist” international pressure and keep customs duties as its primary form of revenue generation.
But the government 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 the country’s financial services sector.
Minister Smith said there is an urgent need to examine alternative revenue systems and a need to focus on improving the current system of revenue collection.
“I still believe that there is a tremendous amount of leakages and until we plug them, until we see exactly how much revenue we can get from the existing system, then and only then, would we examine other means,” he said. “But the point is, there will come a time – whether I’m there or not – that this country will have to re-examine customs as being the major source of revenue.
“I think going forward, we have to yield. We have to submit that the tax on international trade will no longer be the major source of revenue for the government. That’s a prediction I think I can make with some degree of confidence.”
Minister Smith pointed out that the Bahamian economy is characterized by a tax regime that relies heavily on international trade with its services, manufacturing, agriculture and construction sectors also relying heavily on subsidies and concessions.
Added to this, the country has a monetary system which relies heavily on controls and price-fixing mechanisms to ensure stability, he said.
“In short, there are numerous distortions which would suggest that there is much room for improved efficiencies in the allocation of resources,” Minister Smith said. “It would seem to me, therefore, that the need for reform, restructuring and perhaps retooling substantial parts of the economy has to be given serious consideration whether or not we join CARICOM, WTO or the FTAA.”
He said tightening revenue collection is imperative before The Bahamas proceeds with revamping its present tax structure.
Minister Smith announced that the Ministry of Finance is presently reviewing a plan for modernization of the Customs Department.
He said officials are studying recommendations for recruitment and training of staff; upgrading the organizational structure; improved documentation; upgraded computerization and strategic amendments to the legislation relative to customs operations.
“If and when the plan is fully implemented and it is possible to measure any positive yields from the improved collection process, we 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,” Minister Smith said.
By Candia Dames, The Bahama Journal
