The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance last night said it is targeting a “one-time $500m revenue boost” from a limited menu of enforcement and compliance initiatives while pledging to minimise any increase in the tax burden faced by Bahamians.

The Davis administration, outlining the measures that will drive tax revenues to 25 percent of economic output by the 2025-2026 fiscal year, added that an extra $100m in annual real property tax revenues had been identified via the revaluation exercise undertaken by its consultant, Tyler Technologies.

And it voiced optimism that it could exceed its target of driving real property tax revenues to 2 percent of GDP within the next four years, something that would involve an annual increase of between $68m-$80m in income from this levy.

Using 2021-2022, a period when the Government’s tax revenues were equal to 20.2 percent of GDP, as a base, the Ministry of Finance said it is targeting a 4.8 percentage point increase in this ratio over the next four years. Using real and current GDP figures for 2022-2023 of $11.142bn and $13.264bn, this implies a revenue increase of between $534.72m and $636.6782m on an annual basis.

Acknowledging that “vague promises” of crackdowns on tax cheats and evaders will no longer cut it, the ministry said in a paper: “The Government has been clear that its priority is to avoid, to the extent possible, increasing the burden of taxation on Bahamians. Moreover, the Government is of the view that it would be desirable to implement reductions in customs tariffs going forward, especially in respect of capital goods.

“Accordingly, in order to lighten the burden of taxes, emphasis is being placed on measures that will significantly improve collections of existing taxes, especially in the areas of real property tax, VAT, Customs duties and excise taxes. It has long been acknowledged that important gaps do exist between the amount of taxes that should be paid and the amount actually collected in the above areas.

“These gaps and arrears can be bridged through actions to improve the operational efficiency of the major tax agencies, facilitate compliance by taxpayers and reduce outright tax evasion and non-compliance,” the Ministry of Finance continued. 

“Concrete action beyond the vague promises of the past is urgently required and the Government is determined to do so. To that end, the existing tax laws will be reviewed to determine opportunities for modernisation and simplification of tax legislation, having regard to efficiency, fairness and stability of taxes, and to achieve conformity with best practices.

“As well, a comprehensive review of the Government’s tax concessions regime will be conducted with a view to reducing the quantum of revenue foregone across sectors and in line with international standards. Such as review will also include the introduction of a monitoring and evaluation framework to ensure value for money.”

The Davis administration confirmed its ambitions to develop the Revenue Enhancement Unit (REU) into “a world-class tax compliance organisation” that will clamp down on tax dodgers and close revenue gaps. “The REU has been tasked with adopting, testing and refining best practices that can be scaled to Inland Revenue, Customs and other government entities,” the Ministry of Finance said. 

“In the area of Business Licence and VAT, the REU seeks to introduce efficient desk and entity audits, as well as arrears collection and enforcement. For real property tax, it will accelerate the impact of the 2022 reassessments, identify unregistered properties, target reassessments of high-potential Family Island properties and identify mis-categorised properties.

“For Customs, the REU will focus on world class best practice such as risk-based inspections of air freight and containers, analytics-based post-clearance audits and enhance client service. To date, a one-time $500m revenue boost has been identified from just six selected initiatives. Over time, the activities of the REU are expected to yield an ongoing annual revenue increase of some $200m.”

Turning to real property tax, the Ministry of Finance added: “As part of the project to improve the collection of real property tax, Tyler Technologies has completed the update of the real property tax roll and assessment of New Providence properties, thereby identifying an additional $100m in real property tax revenue. Similar work is commencing on other islands and is expected to secure additional revenues.

“An in-depth analytical assessment of the real property tax system was undertaken a few years ago but its main conclusions generally remain valid today. The study found significant gaps in the system in the areas of coverage, valuation and collection with the implication that real property revenues could readily be boosted to 2 per cent of GDP.

“That would represent a 0.6 percentage point improvement from the ratio of 1.4 per cent in 2021-2022. Based on the successes to date of the Tyler work, it may be well within the realm of the possible to do even better than 2 per cent of GDP over the next four years.”

Acknowledging the need to strengthen and stabilise the Department of Inland Revenue (DIR), the Davis administration lashed out at its Minnis predecessor for ignoring it staffing challenges. “The department has 214 employees of which only 52 are permanent and 49 are seconded from other departments; 54 per cent of the officers are on contract, the vast majority of which have expired,” the Ministry of Finance said. 

“The last person to hold the post of controller of the department retired in 2017. Since that time no one has either been appointed to the post or chosen to act in the capacity of controller. There have also been no appointments (even on an acting basis) to the posts of deputy or assistant controller.

“Since 2017, the department has also experienced a very high turnover of staff resulting in the suspension of critical functions such as audits. Bahamian taxpayers have consequently experienced delays in the processing of Business Licence applications, VAT refunds and the resolution of real property tax matters.”