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Bahamas Needs ‘Ability To Pay’ Taxation System

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Gowon Bowe

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must seriously examine switching to a tax system based on “ability to pay”, a top private sector executive urged yesterday, amid renewed IMF calls for “greater income equality”.

Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA), told Tribune Business that the consumption-driven nature of this nation’s VAT-reliant structure meant those on lower incomes continue “to bear a disproportionate tax burden” in comparison to their wealthier counterparts.

Speaking after the International Monetary Fund (IMF) renewed its call for a “a comprehensive review” of the Bahamian tax system following the latest Article IV consultation with the government, Mr Bowe argued that no such study had been conducted since the current model was conceived in the late 1950s and early 1960s.

“They’ve been recommending in their various missions for the last two years that there be consideration given in that regard,” he said of the Fund’s review call, “and that will continue for a while until we demonstrate we’re not chipping away at the edges but doing a comprehensive review of our tax system.

“I would beg the question: Have we ever had a comprehensive review? The VAT ‘White Paper’ [in 2013] focused on the need to increase taxes... We have probably never had a comprehensive tax review since the inception of the model in the 1950s and 1960s, which is based on consumption taxes, property taxes and tourism taxes.”

Even though VAT has replaced import duties as the government’s main revenue source ahead of the potential World Trade Organisation (WTO) accession, this has meant The Bahamas’ taxation model remains primarily a consumption-based one.

As a result, lower income Bahamians are still spending a higher proportion of their income on taxes than those earning more - a situation that Mr Bowe, also Clearing Banks Association (CBA), must seriously look at correcting given that tax systems should be based on the principles of fairness and equity.

“It still allows those of us less fortunate among us to bear a disproportionate burden,” he told Tribune Business. “We still need to look at a system based on ability to pay; certainly as opposed to consumption, because that’s distortionary as to who should be bearing the burden.”

The IMF seemed to agree, saying in its release yesterday: “Fiscal policy should play a greater medium-term role in achieving public policy objectives, including greater income equality.

“The Bahamas does not levy income or capital gains taxes, relying mostly on VAT, business license fees and international trade taxes. Global tax trends and the prospective accession to the WTO thus present an opportunity for a comprehensive review of the Bahamian tax regime with a view to achieving a more equitable and less distortionary tax system.

“To strengthen transparency and inform future policies, a quantitative review of existing tax and other investment incentives is recommended.”

Most nations rely on income tax, both personal and corporate, as their government’s primary source of revenue since it is viewed as a progressive levy directly linked to ability to pay. Those earning more pay more in tax compared to those on lower income, thereby upholding the system’s perceived equity and fairness.

But The Bahamas, which has long cherished its tax neutral platform and the absence of any form of income tax, has bucked this world trend. While income tax was one of the alternative options to VAT, the Christie government ultimately rejected it due to the fact it has no history here and, more importantly, the extra costs and bureaucracy involved in setting up and administering such a system.

Some cynics, though, suggested that income tax was also turned down because it would force all Bahamians to declare their annual income - thereby exposing all those seemingly living above their means.

But, regardless of the motivation then, Mr Bowe yesterday said the Government needed to “see through” to completion the study of the Bahamian taxation system that it had commissioned jointly with the private sector from Deloitte & Touche’s UK arm.

K P Turnquest, deputy prime minister, told Tribune Business on Monday that this work had effectively been placed on hold by the need to enact reforms to meet the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) demands relating to combating tax evasion.

With The Bahamas now having addressed these concerns, Mr Turnquest said the Government would seek to “restart” the Deloitte effort although he gave no dates for when this would happen.

“We hope to restart that project at some point,” Mr Turnquest said. “We have our three-year plan already and will continue to work that. However, as we’ve already said, the Ministry of Finance has to be armed with the relevant research and forward-looking facts, and have the relevant options looking into the horizon.

“While not a priority today, it’s important to have all the tools available to us to address a situation that may arise.”

The Deloitte & Touche (UK) study of the Bahamas’ tax structure was to focus on potential reforms to make it more efficient and equitable, and assess options and alternatives to the Business Licence regime among other issues.

Mr Bowe yesterday said the accounting firm’s work had “gone through various iterations”, and added that the research should have continued notwithstanding the immediate need “to put out the fires with the EU”.

He added that The Bahamas could ill-afford to “wait for the next penny to drop with the EU and OECD”, and suggested that rather than wait for the next attack this nation needed to put itself in a position where it can defend its tax system. “Sometimes a good defence is a good offense,” Mr Bowe told Tribune Business.

He argued that any taxation review should focus on the twin objectives of ensuring the Government earns sufficient revenues to pay its bills and meet its citizens’ needs while, at the same time, providing a structure that was fit for purpose and maintained The Bahamas’ international economic competitiveness.

The BICA chief said tax systems should be focused on the principles of simplicity, equity, fairness and efficiency, while eliminating any distortions that penalised a particular group in society.

Mr Bowe, who met the IMF team during its recent visit to The Bahamas, said the encounter was “a pretty positive one” with the Fund giving The Bahamas credit for reforms already enacted.

“They were very much focused on what our economy will look like in the 21st century,” he added.

Comments

TheMadHatter 5 months ago

Mr. Bowe - please reconsider your position. Bear in mind that a LARGE number of persons in the Bahamas are self employed and a great number are illegally employed. THEY would pay ZERO in income tax the same way they pay zero in National Insurance right now. Many self employed persons undoubtedly under-report their income, or "forget" about some of the cash jobs they do "on the side".

Also bear in mind that the poor pay no customs duties on baby food and baby items (which allows them to more economically produce more poor people), and now recently they pay no VAT on "poor people food" otherwise known as price-controlled items in the food stores.

How much more must we give these people? The poor who come here illegally get even more breaks than our own citizens. Free land, free food (from churches), free lumber (from construction site leftovers), free clothing (from thrift stores) (well, almost free). You ever been on Mackey Street north in the early mornings? I won't mention no name of any place in particular (LOL). When you go to the clinic on Tuesdays you better be prepared to wait LONG, cause all the pregnant women get first priority. You gotta wait on their nasty hips while they sitting there with their other 3 crying infants aged 3, 2, 1 respectively while they wait on the baker (sorry, I mean doctor) to deal with the one "in the oven".

The VAT tax is a very excellent tax (if the price control exemption was removed like it was originally) because it ensures that these (censored word) people PAY at least something. Most of them don't have cars so don't pay no insurance, no car license, no drivers license, and no gasoline tax and no gasoline VAT (which are separate by the way). Wonder how many duty free generators come in those sloops? You ever seen a Customs officer at the dock when one of those sloops comes to tie up? Ever? I mean EVER???

The poor need to start being more concerned about themselves. Stop walking around all day with headphones on listening to RAP and other cRAP and learn something and do something besides drinking smoking and grinding. I don't see why we should pay higher taxes to support their SLACKNESS.

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John 5 months ago

The property is the greatest misery! So you paying government 35-45% duty on items used to construct a home/ building. Then they start charging 1-21/2% property tax on that property as soon as it is completed. Then the government also charges 5 % on overdue balances. And this is what really gets property owners into trouble. When they cannot afford to pay the property tax and they get hit with this accumulated interest. Banks are paying 0 interest on deposits and government own bonds are paying less than 5 %.

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Well_mudda_take_sic 5 months ago

How about defend our borders and deport illegal aliens that are literally sucking our country's limited resources bone dry? The wealthy have no desire or responsibility to be burdened with a disproportionately unfair progressive tax structure. A reasonably fair one they might tolerate. An unfair one they will balk at and head for the exit door to another country. Therefore be careful the solution you propose Mr. Bowe.....all solutions have consequences....and socialism is fraught with all too many unintended and most undesirable consequences. Most of us have experienced first hand the devastating consequences the brain-drain has had on our country. We can ill-afford for that to now be followed by a wealth-drain whereby the wealthier among us throw in the towel and head for the exit door en masse. Choose your words carefully Mr. Bowe...the wealthier among us are listening.

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Chucky 5 months ago

the number one problem that all nations face is a governments insatiable appetite for more revenue. every government in every nation will choose the pursuit of more revenue while ignoring the lack of efficiency and poor value for the dollar in every service provided.

its as though, rather it is, that tax revenue becomes is a market segment that is open for the ruling members and their cronies to exploit for profit.

the services provided by government will never be efficient or cost effective, the service is so poor and expensive that in every case we are better off without them.

there is not one service provided by a government which can compete with the same service offered in the private sector. Not in quality of service, not in price.

the reasons are simple; the government revenues support a parasite class that consists of politicians, civil servants, and their cronnies.

they will forever concoct new ways and reasons to collect more from the people unde the guise of "providing".

the only solution is to never, and i mean never let governments grow.

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Well_mudda_take_sic 5 months ago

I could add a lot to what you say here but I would only be detracting from your well put big picture points. Thanks

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killemwitdakno 4 months, 3 weeks ago

That's simply a bracket of income that's taxed. Or the most obvious one, corporate.

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