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'No Escaping' Tax Hikes As Imf Pushes Income Levy

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian economist yesterday said there was "no escaping" new and/or increased taxes to pay for COVID-19's debt blow-out as the IMF again pushed an income tax solution.

Rupert Pinder, who lectures at the University of The Bahamas (UoB), told Tribune Business that while he backed the Fund's rationale for such a levy any reform had to be "comprehensive and not done in a piecemeal fashion".

He spoke out after the IMF, in its statement on the Article IV consultation with the Government and elements of the private sector, reiterated previous arguments that some form of income taxation would be fairer and more equitable than the present consumption-based regressive system that The Bahamas enjoys now.

"Income taxation can help achieve a more equitable income distribution," the Fund said, barely disguising its desire to prod The Bahamas in this direction. "Tax policy and administration measures are essential to a robust consolidation.

"In tax administration, the review and modernisation of the Department of Inland Revenue’s organisational structure should be prioritized. For Customs, priorities include establishing an effective exemption monitoring and verification unit, strengthening risk management, and developing post-audit clearance capacity."

Mr Pinder, in response, said it was hard to see any alternative to new and/or increased taxation to help pay for the extra debt taken on by the Government to pay for COVID-19 and the Hurricane Dorian recovery once the economy stabilised and then pandemic passed.

"My argument is that's coming. There's no escaping it," he told Tribune Business. "But what needs to happen is is we need to have a very comprehensive look at taxation, and not do it in a piecemeal fashion. It's got to be a comprehensive review.

"When you look at taxation issues, one of the arguments is that with tax revenues as a percentage of GDP traditionally at 18 percent, we have good head room in terms of increasing the level of taxation. I've heard people in the Ministry of Finance use that argument.

"The danger of that is it's one thing to look at the numbers in relation to GDP, but to focus on consumption taxes which affect people at the lower end of the spectrum disproportionately rather than direct taxation, which has more bearing on income levels than consumption......"

Mr Pinder acknowledged that consumption-based taxes, such as VAT and import tariffs, were easier to collect especially since The Bahamas has no history of income or corporate income taxation.

While this nation has to-date shied away from such taxes, due to concerns over whether it has a sufficient income tax base, and the difficulty and costs associated with collecting it, he added that he did not necessarily "buy that" given that Barbados has both income and consumption taxes.

Income tax, whether personal, corporate or both, has long been viewed as a reform option for The Bahamas by elements both inside and outside the country. The current regressive consumption-based tax system is seen as unfair because poorer Bahamians end up spending a disproportionately higher amount of their income in taxes compared to higher earners.

Under direct taxation, such as an income tax, the amount of tax paid is linked to the person's ability to pay, which makes for a fairer, more progressive system. Similar sentiments were recently voiced by the Government-appointed Economic Recovery Committee, which said in its executive summary: "The Bahamas’ historically regressive tax regime is viewed largely as both inequitable and unsustainable.

"Tax contributions are disproportionately higher for lower income citizens/businesses largely because of the regressive nature of the country’s tax regime. Beyond this, the sustainability of the current regime in light of population growth, the rising cost of living and other factors remains an impediment to its growth and development prospects."

Marlon Johnson, the Ministry of Finance's acting financial secretary who also co-chaired that committee, yesterday said the Government would take the IMF's plugging of income tax "under advisement".

He added that whatever tax reform options were assessed, they "need a deep study so that the appropriate regime is based on empirical data and matches where the country is presently".

Elsewhere, the IMF also reflected the committee's report by suggesting that The Bahamas increase the real property tax rate for "higher value residences", although it did not define this market segment. The committee had recommended increasing the $60,000 real property tax 'cap' or ceiling, and for real property tax to be levied on "high end" Bahamian-owned properties in the Family Islands.

The IMF, meanwhile, added that "establishing an asset registry and real estate price index would reduce information asymmetries and support monetary policy transmission". It said: "The Bahamas faces long-standing structural impediments, and COVID-19 brought them to the fore.

"Reform priorities, many of which are listed in the recent report by the Economic Recovery Committee, include modernising administrative services and rationalising regulatory requirements for starting a business; enhancing the operational efficiencies of utility state-owned enterprises; and reducing frictions in the job matching process.

"The prospect of more frequent natural disasters makes it paramount to further enhance resilience. The disaster relief fund, which was exhausted following Hurricane Dorian, should be gradually rebuilt. A proactive data exchange among relevant agencies can increase agility of social programmes, while better targeting could broaden the reach of services.

"A mandatory insurance for all private properties, not just for those financed by mortgages, can help increase private sector resilience. To ease the socioeconomic burden, a means-tested subsidy for insurance premiums could be considered."

Comments

Porcupine 4 months, 1 week ago

This is the most important and contentious issue this country will contend with in our lifetimes. And, our children's lifetimes. What can be said is that the current tax regime is unfair, ineffective and significantly constrains the economy. We have allowed successive governments to draw us further and further away from any prospect for national development. We must incentivize our people to become more productive, while at the same time more wisely use the resources we have available. Taxation should be progressive, to be fair. Most people agree with that, I believe. That nearly 90% of our tax base comes from Duty and Excise tax is too heavy a burden on our poorest people. Customs Duty is one of the worst ways to raise revenue a country can choose for many, many reasons. Property tax is way too low, especially for the high end properties. However, it must be said that the "experts" are experts in the current state of affairs, both here in The Bahamas, and elsewhere in the world, I would argue that we need a complete revamping of our tax laws and a new understanding of what holds us back as a nation. Hint, it is not just our own internal affairs that are causing the pain. Those in positions of power in this country, as in every country, get paid well to sing for their lunch. We need a new vision. Apart from the incremental changes proposed by the experts.

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observer2 4 months, 1 week ago

Porcupine. I agree with you that income tax is an important issue however without fiscal reform and accountability any additional revenue raised will have zero impact in improving the well being of anyone in the Bahamas.

Waste, corruption, little transparency, centralization, no loss of government jobs during the pandemic, massive debt, incompetence have not been addressed.

Raise the taxes until the rich leave. Then we will be another IMF basket case.

I don't know of any country where the IMF as invested that is not a basket case today....Argentina, Brazil, Mexico, Ecuador, South Africa, Ukraine etc etc.

We are definitely next in line for default.

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Porcupine 4 months, 1 week ago

Agreed and understood. Can't be piecemeal.

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JokeyJack 4 months, 1 week ago

The IMF is singing their standard song here. The motive seems to be to discourage wealthy persons from coming to live and work in the Bahamas, by taking away any tax savings they may realize.

Income tax is a non-starter here. The main reason is we have so many who do not report and/or under-report their incomes. We have a whole mass of people who pay no NIB whatsoever. The beauty of VAT is that those suckers have to pay as well. The downside is, yes, the poor pay disproportionately.

Perhaps if we remove that $60,000 real estate ceiling, and remove the NIB pay ceiling, and increase the % paid by persons making above some amount of money to NIB, and also increase the NIB % overall (but not as much as for the high earners) - then we can reduce VAT to 10% and remove from it all of the exemptions. There is no reason that certain items should be VAT free. Food, medicine, everything should incur VAT. The flat rates of "VAT" on gas and diesel should also be removed and replaced with the regular 10% VAT. Also a minimum rate of gasoline and diesel prices should be established (such as $4.00/gallon (perhaps) and anytime they dip below that, the difference should be collected as tax - so that government gets a windfall of income.

The truly sad story here though, is that people will plan and scheme to the best of their ability not to pay taxes as long as they have no idea where this money is going. Accountability is key, and that is sorely missing in this country. Money just seems to disappear. Whatever happened to that plan to have ZNS television display public information items from midnight to 6am? Oh, yeah, the "Keep the People Ignorant" policy probably got in the way of that.

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Proguing 4 months, 1 week ago

With all the debt that needs to be paid back, this country will soon turn into a fiscal hell

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Bahama7 4 months, 1 week ago

A new industry and fresh thinking is required.

Ramp up the tech and oil and sort out the financial services industry. The AML situation needs to be moved to best in class to move off the grey list.

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Porcupine 4 months, 1 week ago

Glad that you point out that oil is part of a new industry and fresh thinking. What part of oil is fresh?

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tribanon 4 months, 1 week ago

No thanks. We Bahamians want to keep our best in class environment.

You BPC oil drilling proponents are all alike. A most pathethic and despicable bunch of con men preying on gullible investors who have more money than sense in order to fill your own pockets. Get a real job and earn a living rather than stealing a living from fools who are too easily parted from their money.

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Socrates 4 months, 1 week ago

The proposition seems to be WHO should pay the bill more than paying the bill. Our population is small so I think it will be a hard sell if the intent is that income tax will provide the level of taxation needed, especially if we are going to reduce consumption taxes at the same time. We recently introduced VAT and it did nothing to reduce the debt; why should we believe income tax will be any different? This is just the old Robin Hood principle being recycled.

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