The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must make tax reform happen as early as the 2013 fourth quarter, the Chamber of Commerce’s (BCCEC) chairman urging the Government to adopt an “aggressive approach” to managing the economy.

Responding to Moody’s assertion that the Christie administration’s plans to ‘balance the Budget’ by the 2016-2017 fiscal year were “overly optimistic”, Chester Cooper told Tribune Business that the Government also needed to reform collection processes for existing taxes.

Suggesting that this would both boost public sector cash flows and reduce revenue leakages, Mr Cooper, who is also BAF Financial’s president and chief executive, said the Bahamas was “over reliant” on indirect taxes.

He added that the early implementation of a new tax structure, such as a Value Added Tax (VAT), would give the Government “flexibility” to lower Customs duties and bring much-needed relief to Bahamian-owned small and medium-sized businesses.

The current system requires the private sector to pay the bulk of their tax burden up front, before they generate any revenue/cash flow. Mr Cooper pointed to the “unconscionable” 85 per cent Excise Tax on trucks and commercial vehicles, saying this had made it harder for electricians and other tradesmen to survive, as one area where tax reform could help ease the pain.

Declining to comment on the specific assumptions underpinning the Government’s Budget projections, as he did not know how they had been derived, Mr Cooper told Tribune Business: “These are still very serious times for the economy of the Bahamas, and that of the US, where most of out tourists come from.

“These times will likely continue, even with resolution of the fiscal cliff crisis. Having said that, Government must be aggressive in its approach to managing the economy.”

When it came to the Government’s fiscal problems, Mr Cooper told this newspaper: “In my view there is still too much over-reliance on real property taxes, Business licenses, Customs duties and other indirect forms of taxes.

“I would wish to see a similarly aggressive schedule to reform the tax system by the introduction of new forms of taxes and reform of collection practices for the existing taxes, to improve timeliness of cash flows and reduce leakages. If it’s the much-touted VAT, then we should make it happen post-haste - ie, as early as the fourth quarter 2013.”

The BCCEC chairman added: “This will allow the Government the flexibility to lower Customs duties strategically to drive the economy.

“For example, small business persons are gravely concerned about the unconscionable 85 per cent duty on small trucks. With the recession, many small businesses who employ two-three people, like plumbers and electricians, have resorted to working from their trucks to save on overhead.

“We can help to further support small business (which is an important driver for growth of the economy) by strategically making it easier for them to survive by reducing duties on small trucks.”

In its full country analysis on the Bahamas, Moody’s, the Wall Street credit rating agency, said the Government’s plans to ‘Balance the Budget’ by the 2016-2017 fiscal year are “overly optimistic”.

It went on to say that the Government’s assumptions underpinning its fiscal forecasts, namely a 3.5 per cent nominal GDP growth rate and reduction in interest costs to 4.3 per cent (almost a 1 percentage point drop from the 5.5 per cent historical average) are “too favourable”.

And Moody’s echoed the same sentiments about the plan to grow real property tax revenues to 2 per cent of GDP, from the current 1.2 per cent, which they say will involve a compound annual growth rate of 11.3 per cent in revenues - compared to the current 3.1 per cent CAGR.

And, with the Government planning on running primary budget surpluses of 1 per cent in 2015, and 2.4 per cent in 2016, Moody’s describes this as an “unprecedented correction”. It adds that a primary balance of 0.8 per cent of GDP is required - a 4.6 per cent, or almost $400 million swing, from the current 3.8 per cent deficit - to balance the Budget.