• 75% of filings met prior to rate hike
By NEIL HARTNELL
Tribune Business Editor
The Bahamas had the "highest on-time" VAT filing rates in the Caribbean prior to the rate being increased to 12 percent in 2018, an Inter-American Development Bank (IDB) report has revealed.
The multilateral lender's Economic Institutions for a Resilient Caribbean report, released last month, disclosed that 75 percent of Bahamian VAT filings were made on time based on data collected in 2017.
This compliance rate exceeded all other major Caribbean markets, with Trinidad & Tobago next best with 73 percent of all filings being made on time by VAT registrants. Jamaica, at 65 percent, just exceeded the region's 60 percent average, but both Barbados and Guyana fared poorly with 45 percent and 43 percent on-time compliance, respectively.
"On-time filing rates vary across Caribbean countries and among tax types," the IDB report said. "The Bahamas has the highest on-time filing rates for the VAT in the region with 75 percent, while Guyana has the lowest at 43 percent.
"Jamaica has a relatively steady percentage of on-time filing across tax types of between 65 and 67 percent. In contrast, Trinidad and Tobago has a high percentage of on-time filing rates for the VAT at 73 percent."
The compliance rates cited by the IDB date back to when The Bahamas had a 7.5 percent low rate, broad-based VAT model and before the Minnis administration hiked this to 12 percent. It is unclear whether the 75 percent on-time filing rate has been maintained with a higher rate VAT that has increased administrative complexity due to the number of exemptions now introduced.
The VAT rate increase in the 2018-2019 Budget was justified on the basis that extra revenues were required to pay-off some $360m in unfunded spending arrears for which no monies had been allocated. Some $282.7m of these arrears had been paid off as at end-December 2021, with the Government having previously given itself three years to wipe out the full amount.
However, its VAT adjustments ran counter to the advice given in the IDB report. "Keep it sound and simple," it advised on tax policy. "Simplify the good connection between tax policy and tax administration, and curb exemptions.
"Tax policy and revenue administration are intrinsically linked, and the cost of an effective revenue administration goes far beyond the revenue losses. Thus simplicity is an important value when designing a tax system in order to promote voluntary compliance, reduce compliance costs and facilitate enforcement—the key functions of the administration."
The IDB report also called on The Bahamas to speed up and simplify the VAT registration process. It said: "The taxpayer registration process in The Bahamas is available online, but it can take up to 21 days for officials to review all the information."
And, when it came to revenue management, it added: "Guyana, The Bahamas and Suriname should consider establishing a special organisational unit devoted to preparing economic studies (like the ones in Barbados, Jamaica, and Trinidad and Tobago).
"In general, these units should include a specialised analytical team focused on tax collection trends, monitoring the hidden economy, revenue yields from audits, understanding taxpayer behaviour, and providing input to government budgeting processes of tax revenue forecasting and estimation. For these matters, strong inter-institutional co-ordination is needed."
Therese Turner-Jones, the IDB's general manager of the country department Caribbean group, said: “As Caribbean governments pivot towards smart and resilient investments, strong economic institutions are needed to ensure public spending benefits all citizens.
"In addition to recommendations for improving fiscal management, the [report] also proposes important monetary and financial system reforms to ensure Caribbean institutions and people are prepared for the future."
Moisés J. Schwartz, manager of the IDB’s Institutions for Development department, and one of the editors of the book, added: “Stronger and better-equipped institutions constitute a formula for success, and sound economic institutions are a prerequisite for economic development and prosperity. The reforms needed in Caribbean countries should not be underestimated or postponed.”
“Countries that have engaged in institutional development have been shown to be better equipped to confront economic shocks, such as the coronavirus pandemic, be more resilient in responding to them, and have better prospects to recover more rapidly,” said Diether W. Beuermann, economics lead specialist for the IDB’s Caribbean department.