The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Fiscal Responsibility Council's (FRC) chairman yesterday argued that The Bahamas should have moved "a long time ago" to address the regressive nature of its taxation system.

Kevin Burrows, while backing tax reform in general, and improved collection of existing levies, warned against raising taxes in the near-term on the basis that this would be “counterproductive” and only serve to undermine the economy's recovery from the COVID-19 pandemic.

"Tax reform is something we should have tackled as a country a long time ago to redress the regressive nature of our current system. Improved tax collection at the existing rates can also be improved," Mr Burrows said.

He spoke out after the International Monetary Fund (IMF), in a statement on its latest Article IV consultation, plugged income tax as 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."

Consumption-based taxes, such as VAT and import tariffs, have traditionally been viewed as easier to collect especially since The Bahamas has no history of income or corporate income taxation. There have also been concerns over whether The Bahamas' 400,000 strong population provides a wide enough income tax base, along with the administrative costs associated with collecting it.

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.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, and another Fiscal Responsibility Council member, said there have long been questions over whether the current tax structure is "fit for purpose".

Arguing that there has been little to no reform since the 1950s, Mr Bowe said: “This has been a consumption-based tax system. Has that tax system in recent times yielded a sufficient tax to meet the social demands? The answer is no, because we run the deficits, and have been running deficits since independence; no surpluses.

"Has it allowed equitable distribution? The answer is no, because on consumption, those who are lower earners pay more than those who are higher earners. There's only so much you can consume, and so it's not an equitable distribution.”

Mr Bowe, also responding to the IMF's projection that The Bahamas will not recover the economic output (GDP) lost to COVID-19 until 2024, agreed that the country's rebound will take time in the absence of a growth game changer.

“If you go back to the global recession in 2008, there were many persons everywhere saying that we had not recovered right up until 2015. That was a whole seven years," he added. "When you look at it in terms of having such a major contraction in your GDP, unless you have a show-stopping solution that has your economy growing by leaps and bounds, it's simply going to take time.”

“So I don't think they the focus should be on the four years. The focus should be on as long as the upward trajectory is meaningful, meaning that we have consistent.... I'm going to say mid-level growth of 4 percent or 5 percent, instead of a lethargic 1-2 percent.

"If it is what we were pre-COVID-19, where we were basically growing it [GDP] only 1 percent, then we are going to have 16 years to go because everyone is estimating that we are going to have at least 16 percent to 20 percent GDP contraction.”