By YOURI KEMP
Tribune Business Reporter
A Cabinet minister yesterday reiterated that new and/or increased taxes are an “absolute last resort” given that they will undermine The Bahamas’ post-COVID recovery, again pledging that they will not feature in today’s Budget.
Senator Michael Halkitis, minister of economic affairs, said prior to the weekly Cabinet meeting: “The Prime Minister has said repeatedly that’s an absolute last resort. We’re not anticipating that. Well, we’re not doing that. Our view is that we need to grow the economy.
“We are still emerging from the effects of the COVID-19 pandemic. We are very optimistic, and we’re encouraged by the signs that we see coming out of the economy in terms of people being employed. If you look around, construction is going on and investment in the country, so in terms of the tourism industry we’re very strong and so we’re encouraged by that.
“We believe that any increase in taxation will tend to work against that recovery. So our view is we need to encourage the continued growth of the economy, employment and spending in the economy, and another thing that we’re doing, as we have been speaking about, is ensuring that in tandem with that we are improving our revenue collection.”
The Government, though, is facing outside pressure to enhance its income having targeted a 25 percent revenue-to-GDP ratio by 2025. This, according to its Fiscal Strategy Report, will involve increasing revenues by $1.3bn over the next four fiscal years - a jump of 55.7 percent - to achieve a Budget surplus of $71.9m by the end of the 2024-2025 fiscal year. Many observers believe this will be impossible to achieve without some measure of new and/or increased taxes.
And the International Monetary Fund (IMF), in is most recent Article IV Consultation on The Bahamas, encouraged the government to engage in meaningful tax reform that would boost overall revenue administration and collections.
The Fund argued that a gradual increase in the VAT rate towards the Caribbean average of 15 percent would boost revenue as a percentage of real GDP by around 2.7 percent. It also called for income tax to be applied to the top 10 percent of earners at a 10-15 percent rate, saying this - coupled with a flat 5 percent withholding tax on capital income - would raise revenue equivalent to an additional 2 percent of GDP.
The Government, which is not compelled to follow the IMF’s advice, also plans to implement a mechanism contained within the VAT Act that allows it to request that financial institutions provide it with delinquent taxpayers’ financial records. This comes after Department of Inland Revenue officials recently said they planned to garnish, or take a lien over, a person’s salary or company’s income and bank accounts if they have unpaid taxes.
With the Government focused on enforcement and compliance, Mr Halkitis said it wants what is “on the books” from persons who can afford to pay and “make sure that we have the mechanisms in place for them to pay, and for us to collect, and we continue to seek out new sources of revenue”.
Such “new sources” include the possibility of carbon credits, and the minister said of the Government’s goals: “Grow the economy, do a better job of collecting what’s out there, seek out new sources of revenue and it’s very important that we manage our spending and eliminate waste as much as we can. So we believe if we focus on those four things, we should we should continue on this road to recovery.”