By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The government has admitted to losing around 50 percent of due Customs revenues from inefficiencies in a system it is working feverishly to reform by eliminating manual processes.
The confession is contained in the government's own just-published review of The Bahamas' progress in meeting the United Nations' (UN) Sustainable Development Goals, with the report's release timed to coincide with Dr Hubert Minnis's visit to the New York-based body today.
The review, which has been obtained by Tribune Business, confirmed that half of due revenues collected through Customs were being lost due to system leakages, loopholes and fraud prior to efforts to modernise the system by introducing the Electronic Single Window (ESW) - a project said to be in the final stages of completion.
"The existing system was considered ineffective, due to over-reliance on manual procedures and outdated information systems," the government's report concedes. "These deficiencies were estimated to be costing the system around 50% percent of the revenues that a more efficient tax administration system would be able to collect."
Robert Myers, the Organisation for Responsible Governance's (ORG) principal, yesterday told Tribune Business that the government's estimate was in line with those produced by the private sector when he headed the Chamber of Commerce's Coalition for Responsible Taxation (CRT).
That body had projected the government was collecting just 45 percent of due Customs duties and real property tax prior to value-added tax's (VAT) introduction in early 2015, with the low collection rates resulting in an ever-increasing burden being placed on compliant taxpayers to contribute more.
"I think that's right from what I understand," Mr Myers said of the 50 percent Customs leakage rate. "Back in the CRT we said compliance on Customs duties and real property tax was 45 percent. That's pretty frigging atrocious.
"The modernisation of that, and going to the Electronic Single Window, will help considerably but when you're not collecting taxes from who you're supposed to be collecting them from, you have to charge other people more tax.
"If you don't make this thing compliant, and tax compliance is at 50 percent, you are having to charge the compliant ones 50 percent more than they should be paying. That's the problem. The law abiding taxpayers are paying double what they should be paying. That's the thorn in my side. The other 50 per cent aren't paying what they should be."
The Government's review, which will be submitted to the UN, also pledged reform and modernisation of the real property tax system - echoing its pledges in the 2018-2019 Budget.
Mr Myers yesterday called for the Government to end the exemptions that see Bahamian real estate owners in the Family Island, and those possessing undeveloped land in New Providence, not having to pay real property tax.
Arguing that the Government needed the broadest possible tax base, the ORG principal suggested such carve-outs were inequitable and had resulted in "land banking" that tied up large tracts that could be used for productive economic activity because there are no carrying costs.
"Some thought needs to be given to that also to start unlocking some of this land that could be used for development, increasing GDP and improving the Government's fiscal position," Mr Myers told Tribune Business.
"I'm a believer in the Out Islands. The people that build third and fourth homes, and are renting them, should be paying property tax. Those are businesses, so they should be paying property taxes.
"They may not pay the same rate as in Nassau, but they should not be getting a free ride given that the Government needs a broad base of tax. I'd prefer to see that ahead of the Government doing income or corporate tax. There's a lot for us Bahamians to consider. It's a 'me' problem, not a government problem. We've got to fix this thing otherwise we'll all go under together."
The Government's UN sustainable development goals review identified fiscal reform as critical to strengthening sustainable development, and mobilising domestic resources to achieve this.
"Good fiscal management is critical for economic growth," it acknowledged. "It is therefore important to have strong domestic resource mobilisation institutions and mechanisms, fiscal discipline through the development of strong monitoring tools such as budgeting and accountability processes, debt management, policy coherence and availability of high quality, timely and reliable disaggregated data."
However, the Government admitted that among the challenges was "some expected institutional resistance to organisational change" from within the public sector to the various financial and information management systems being implemented.
It also identified "project fatigue" as a concern, given that the $33 million Inter-American Development Bank (IDB) financed project to overhaul the public sector's financial management and performance monitoring will take place over five years.
Further challenges were the Government's ability to achieve "continued prudent fiscal management, from both the revenue and expenditure perspective, to mobilise significant resources for development in the face of vulnerability to external shocks" such as hurricanes.
Finally, the Government conceded there was "the absence of a co-ordinated framework to effectively co-ordinate and seek out international technical co-operation".
Comments
Economist 5 years, 9 months ago
As the WTO forces lower duty there will be less for Customs to miss. Indeed, there will be less need for all the Customs Officers. Government is now collecting the revenue by the much more efficient method of VAT. Soon we won't need as many customs officers and can save the Government salaries.
Dawes 5 years, 9 months ago
Ahh but who collects the VAT at the border? The same Customs officers that will no longer collect the duty
John 5 years, 9 months ago
So it was revealed several decades ago that some of the largest businesses in the country are involved in some type of smuggling or tax evasion or the other and that is how they maintain their market share and control. And some of these businesses have ties to one or both governments and so that is how they maintain an established route to evade customs duties. And so you have members of government passing laws they do not intend to abide by. A few years ago some (young) customs officers decided to do an expose' about what was going on in customs. They were quickly made to disappear from customs but were barred from all other government jobs. When a company has an established method of not paying customs duties they obviously have control of the market. They can price their goods at the normal prices and make a windfall on the extra profit. They can sell lower than the competition and corner the market and force the competition out of business and then raise their prices in the absence of competition. And so when all other stores have their lights and air conditioners off, it is business as usual for these merchants, who are living high off the hog. And now government's cherry picking policy with exemptions and other tax breaks in the inner cities may further empower these merchants to come in the inner city and finish killing the poor, small businessman who been struggling for at least a decade to keep his door open. Whan ya dumb, ya dangerous.
John 5 years, 9 months ago
@ Economist apparently you don’t realize Customs also collect VAT. And yes WTO was pushing for the elimination of customs duties, which was to be replaced by the VAT of the beast, you pay vat every time you buy or sell.
DWW 5 years, 9 months ago
you can't collect property tax in the family islands if you don't know who owns the land... ever heard about how many people own one peice down so so...
bogart 5 years, 9 months ago
In running a business enterprise whether you deal wid 8 million or 8 billion dollars you expect to deal with losses ....and is you keep having numbers of 50% not being able to stop you are out of business in no time flat. The fact large amounts of Customs duties have been reported by successive governments ....and not one single CULPRIT OR CUSTOMS DEFRAUDER have ever been captured or put to trial is well.....???? If any govt agency can make such assertion without any evidence ....must share whatever dey smoking cause its damn good...!!!!
ohdrap4 5 years, 9 months ago
this is not true, many have paid fines to customs, even if story not in the newspaper.
i know of a man who went bankrupt as he had to sell all his property to satisfy customs.
you might want to check headlines for the past 2-3 years.
Economist 5 years, 9 months ago
I am well aware of the Vat at the boarder. If Customs is modernized to first world standards then most of the goods are declared by the business as and when it is imported and both VAT and the Duty, is paid directly to the government. No cash at the boarder and customs only does spot checks to keep people honest. The penalty for trying to cheat the government is more than business is prepared to risk.
Yup, quite a few less customs officers are required.
Porcupine 5 years, 9 months ago
"If you don't make this thing compliant, and tax compliance is at 50 percent, you are having to charge the compliant ones 50 percent more than they should be paying. That's the problem."
Actually, that's not the problem. You have to charge the compliant ones 100% more. If you need $1.00 in taxes, and one person doesn't pay .50c, the other has to pay the full dollar. That equals 100% more.
bogart 5 years, 9 months ago
@ohdrap4....thanks......if on the aspect of fraidsters being detected an caught .then that adds to the 50% percentage ....and should state so which would raise greater alarm......(I am being ????....when I refer to not one culprit or defrauder being brought to trial - I am aware of the well known persons like the former politician with a trailer load of chicken...the fruit drink ones...the smuggled cars in trailers...that have been caught.?..but it is uaually the well heeled culprits.... more who just dont make it to the press.....cant remember any recent ones..lol).......but still losing 50%........"The government has admitted to losing around 50% of due Customs revenues from inefficiencies in a system it is working feverously to reform by eliminating manual procedures"... Ohdrap4....these losses go way back ....last business was Robinhood who had their computers seized an returned in pieces but nothing I believe was ever found ....some 2-3 ??? govts ago
John 5 years, 9 months ago
So what about the fraudsters who are the government? And then there is this large portion of the population who own boat and private aircraft. And they travel back and forth to the US like it’s just one country. Bringing in what they like when they like. So some of that $220 million in Defense Force assets has to be spent on things other than rounding up Haitians.
Porcupine 5 years, 9 months ago
Or, eliminating Duty, which has proven to be one of the most inefficient and corruptible ways of raising revenue in history.
proudloudandfnm 5 years, 9 months ago
And they raised VAT...
WOW...
BahamaLlama 5 years, 9 months ago
Leakage? You mean theft? The dept with the nicest looking building? The one John Rolle openly admitted in the press was appallingly corrupt (http://www.bahamasb2b.com/news/wmview...">http://www.bahamasb2b.com/news/wmview...)?
"a project said to be in the final stages of completion."
Oh really? Anything after day 1 is the final stages of completion. $15M and it's apparently entirely broken.
John 5 years, 9 months ago
Go up in The Northern Abacos where everyone owns two and three homes. Can they show receipts to show customs duties were paid...and there are are some businesses up that way that are highly reluctant to take Bahamian dollars. Why? because they buy most of their supplies in the US and pay in US currency. Then why there is such a vast difference on a pack of cigarettes. Take for example DK's that are manufactured in Freeport, Bahamas. Some places have this cigarette priced at $5.38 a pack and other stores have it at $9.66 before VAT. And not to speak of the price variance on imported brands like Rothmans..going from $6.00 a pack to upwards of $10.00. And lamb chops have moved from $2.99 a pound in 2016, before Vat to $5.39 a pound.. Unfordable for most families while pork chop has only increased a few cents..
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