The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government believes better administration will yield a “minimum” 20 per cent increase in real property tax and Road Traffic Department revenues, with its anti-tobacco smuggling measures already causing “greater compliance”.

Michael Halkitis, minister of state for finance, told Tribune Business that the Government was seeking to “harmonise the whole system of” Road Traffic’s vehicle licensing, inspection and driver’s licences, in a bid to generate increased efficiencies and reduce revenue leakage.

And on the real property tax front, the Government feels that the increased use of technology and automation, particularly a satellite-based mapping system that can capture every property in the Bahamas, will boost taxpayer compliance in this area.

“We’re moving forward with this,” Mr Halkitis said of the Government’s real property tax plans, which aim to almost double the current take from around $90-$100 million to $180-$200 million.

“We’re at the stage of looking for an IT system for real property tax. We had the vendor come down and demonstrate to us their satellite system.”

He conceded that poor administration, record keeping and enforcement had led to government revenues underperforming in numerous areas.

“The administration, we think, as we move into this year and the second half [of the fiscal year], will yield some fruit,” the Minister added.

Elsewhere, Mr Halkitis said the Government was sticking to initial projections that its Excise Stamp initiative could yield up to $20 million more in tobacco revenues annually, given estimates that more than 50 per cent of such products sold in New Providence had been smuggled in illegally.

The minister told Tribune Business that the Ministry of Finance had “largely resolved” the issues created with major cigarette and tobacco importers, when it asked them to ‘hold off’ releasing imports to the market due to concerns the chosen glue was not properly affixing Excise Stamps.

“One of the initiatives we expect to significantly improve revenue, beginning this quarter and going into the next, is the whole Excise Stamp programme,” Mr Halkitis said. “We rolled that out to get a lid on the smuggling of cigarettes and tobacco.”

Acknowledging the potential supply chain disruption that had resulted from problems over how well affixed the Excise Stamps were to the products, the minister said these issues had been “largely resolved” during meetings last week between the Government and the major tobacco importers.

“The provider told us it’s not unusual to have a couple of hiccups at the beginning, and we’ve resolved some of the issues the large importers have,” Mr Halkitis said. “We’re on the same page.

“The Customs people have told us they’ve begun to see more compliance already.”

And he told Tribune Business further: “When we initially did the research on Excise Stamps, we thought we’d raise about $20 million extra for the whole fiscal year.

“Tobacco smuggling has been a problem for a long time, and Customs estimated that half the product that hits the streets in New Providence has been smuggled in.”

Both tobacco revenues and the Road Traffic Department attracted the International Monetary Fund’s (IMF) scrutiny during its report on ‘Tax Reform for Revenue Buoyancy’ in the Bahamas.

The Fund said tobacco imports recorded at Bahamas Customs were almost one-eighth of the true value that should be declared, indicating the existence of “large-scale smuggling”.

Such a conclusion, which will surprise no one in the Bahamian tobacco industry, is based on Fund estimates that the Bahamian population size, combined with its estimated five million tourists, should consume around 1.36 million packs of cigarettes annually.

This, according to the IMF’, translates into a declared value of $2.7 million for cigarette imports. Yet just $354,000 worth - close to one-eighth of this sum - were recorded at Customs in fiscal year 2011-2012.

The IMF report also backed Bahamian industry suggestions that it is the high 220 per cent import duty rate - the highest - that drives persons to smuggle in tobacco products.

“The high ad valorem rate may result in undervaluation and smuggling,” the Fund agreed. “The choice between specific and ad valorem excises affects the revenue collected as well as the price and the quality of the tobacco products.

As for Road Traffic, the IMF has urged the Government to increase motor vehicle licence fees by at least 20 per cent, arguing that this would improve the “fairness and progressivity” of Bahamian taxation.

The Fund said a “more ambitious” tax structure for passenger vehicles would help combat tax avoidance/evasion by high income earners.

It suggested that a 20 per cent increase in the lowest motor vehicle licence rate, from $150 per annum to $180, coupled with better auto registration and enforcement, could boost this revenue source’s yield to 0.5 per cent of gross domestic product - $40 million - per annum.