By YOURI KEMP
Tribune Business Reporter
The Central Bank’s governor says introducing an income tax will make it easier for the Government to focus investment incentives on target industries and direct social assistance to those most in need.
John Rolle, speaking at an Organisation for Responsible Governance (ORG) panel discussion, said Bahamian policymakers must concentrate on making the “difficult decisions” and executing reforms that benefit this nation “voluntarily” as opposed to having them forced upon the country by international bodies.
“One of the things that makes the Government’s efforts so much easier is having a tax system where you can give incentives to businesses in a very targeted way if you need to stimulate investments in particular sectors and activities,” he said.
“If you have the system designed correctly, and I’m speaking, frankly, about how we approach income taxation, it also makes it easier for government to provide the very direct and targeted assistance to families, as well as to be able to exempt at certain income thresholds.”
The Bahamas has long remained resistance to any calls for the imposition of an income tax despite the likes of the International Monetary Fund (IMF) calling for a more “equitable” taxation system. Yet the consumption-driven nature of this nation’s VAT and Customs duty-reliant tax structure means those on lower incomes continue pay disproportionately more of their income in taxes compared to their wealthier counterparts.
Most nations rely on income tax, both personal and corporate, as their government’s primary source of revenue since it is viewed as a progressive levy directly linked to ability to pay. Those earning more pay more in tax compared to those on lower incomes, thereby upholding the system’s perceived equity and fairness.
But The Bahamas, which has long cherished its tax neutral platform and the absence of any form of income tax, has bucked this world trend. While income tax was one of the alternative options to VAT, the last Christie government ultimately rejected it due to the fact it has no history here and, more importantly, the extra costs and bureaucracy involved in setting up and administering such a system.
Some cynics, though, suggested that income tax was also turned down because it would force all Bahamians to declare their annual income - thereby exposing all those seemingly living above their means. The Government’s just-released Fiscal Strategy Report 2022 acknowledged the equity concerns by saying the “fairness” of taxes is kept under constant review, although no specific reform measures were detailed.
Among the proposed legal and administrative work, the report said, is a “review of existing laws 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”.
Simon Wilson, the Ministry of Finance’s financial secretary, also confirmed recently that the Government is hoping to release a so-called “green paper” consultation document by the 2023 first quarter’s end outlining options for addressing the global push for a minimum 15 percent corporate tax rate.
The Bahamas is among the 133 nations that have agreed to implement this, although its introduction has been pushed back by at least a year until 2024. The initiative is designed to ensure the profits and revenues generated by multinational enterprises (MNEs) with global turnover exceeding 750m euros are taxed in the nations where they are generated, rather than being artificially shifted to low-tax countries as part of avoidance and evasion strategies.
This has potentially important implications for taxes such as the existing Business Licence fee, with the Government having hired the Deloitte & Touche accounting firm to assess the consequences.
Mr Rolle, meanwhile, said The Bahamas must also balance affordable home ownership with hurricane resilience. He said: “Insurance is an issue when we speak to resilience, meaning that as we move ahead, we are not going to get away with just saying, well, if it’s very expensive to insure our homes, etc, because we live in a hurricane belt....
“We cannot shy away from the fact that the cost of insurance is a part of the cost of home ownership and affordability, and we have to think about in the future how do we right size the homes that we construct and occupy so that they can be affordable and be resilient in a hurricane belt. And that we were not entirely at the mercy of public assistance whenever there is a setback.
“But resilience also means that we have to get the Government in a healthy position so that it can invest more in hardening our infrastructure so that we can address the increasing violent storms, as well as the threats that are ahead of us in terms of the sea level rise,” Mr Rolle continued.
“The Bahamas has to be one where we’re growing faster on average than between 1.5 percent and 2 percent. That is how we’re going to get the average unemployment rate below where it presently is.”
The lowest unemployment rate The Bahamas has enjoyed in the past 20 years was in 2001 when the rate was below 7 percent. “I think it means that we have to make the lasting changes so that the economy can grow faster,” Mr Rolle added.
“We have to invest in upskilling the population. The model of the Bahamas during the 1980s and the 1990s was we provide a scholarship to Bahamians to get undergraduate degrees. Now that we have a university, put more money into higher education graduate level and above so that we can train even more and more of our undergraduates at home.
“I think, in terms of competitiveness, we cannot shy away from the difficult issues around Immigration policies, because I think some of the transitional momentum we need to be competitive and to develop certain sectors means that we have to be more receptive to skilled labour coming in for a while in some of our sectors so that we can work alongside them.”