The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s top finance official yesterday forecast that it will “come very close” to achieving its total revenue and tax forecasts for the 2022-2023 fiscal year even though VAT could potentially under-shoot by up to $160m.

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that despite the Government’s main revenue source under-performing projections for the recently-closed fiscal year its overall income was still on track to finish on or near Budget estimates.

The Government’s fiscal summary for May 2023, released yesterday, shows that total revenues and total tax revenues stood at 91.4 percent and 90.7 percent, respectively, of their full-year targets with just one month left in the 2022-2023 fiscal year. Total revenues for the 11 months to end-May were $244.5m below their full-year goal, standing at $2.613bn compared to $2.857bn, while total tax revenues at almost $2.3bn needed to bridge a $237.3m gap during June to reach $2.537bn.

Based on June 2022’s performance, when total revenues and total tax revenues were $221.3m and $187.8m, respectively, if that was matched this year it would leave both indicators moderately short of Budget forecasts by $23.2m and $50m. “I think we will come very close on the revenue side,” Mr Wilson told this newspaper. “There’s still some postings to be done, but we will come very close. On the revenue side, I think we will be very close to meeting our targets.”

However, if June 2022’s intake of $85.2m is repeated, VAT revenues for the full-year will come in at $1.247bn - a figure $164m below the $1.411bn target. The significance of the VAT performance is that, despite this under-shoot, the VAT revenue projection is increasing by almost $180m year-over-year to $1.591bn for the current 2023-2024 fiscal year, thus raising questions as to how the Government will hit this hiked target.

Mr Wilson previously said the tax authorities’ compliance and enforcement efforts place the higher 2023-2024 VAT target within reach, and he yesterday explained that uncertainties and time lags relating to when the Department of Inland Revenue actually receives the 10 percent VAT on real estate transactions is impacting the Government’s revenue forecasting ability.

“A big portion that impacts us on VAT is real estate,” he added. “As an example, you have a transaction announced like the one in today’s paper - a high value sale on Paradise Island. We may see that revenue in six months. We have transactions submitted for us to process in April and, for a variety of reasons, funds have not been paid. There are questions raised about value, and other queries. That is really, in terms of revenue forecasting, a significant issue.”

To address this, Mr Wilson said all revenue and tax-related processing has been moved online so that documents and payments can be submitted digitally rather than via multiple trips to the Department of Inland Revenue. 

Meanwhile, the Ministry of Finance’s May fiscal report revealed that The Bahamas’ national debt increased by $306.2m during the month, a $305.7m rise compared to the year before, due to the Government’s net borrowing activities.

“Proceeds of borrowings during the period totalled $468m via $108m in Bahamas Registered Stock, $100m in Central Bank advances and $260m in drawings from international development agencies,” the report said. “Repayments totalled $161.8m owing to repayments of $100m for Central Bank advances, $58m for Bahamas Registered Stock and $3.8m for domestic bank loans.”

However, the borrowing from “development agencies” such as the Inter-American Development Bank and Caribbean Development Bank increased The Bahamas’ foreign currency debt by $260m. Mr Wilson, though, said this did not represent a departure from the Government’s annual borrowing plan, which was to source the bulk of its financing needs domestically, as this represented low-cost funding that is being used to refinance higher interest loans.

“If we borrow foreign currency we borrow from the multilaterals, and we use foreign currency not to fund domestic expenditure but to repay higher cost foreign currency debt,” he explained. Mr Wilson said The Bahamas is able to access financing from these agencies at rates typically around 4-5 percent, compared to the country’s present bond market yield curve of around 10.5 percent to 11 percent.

Giving the example of a $200m loan, he added that The Bahamas would presently have to repay around $20m per year in debt servicing costs at 10 percent interest, but using multilateral agency funding this could drop to $12m per year - an $8m saving. “That’s nothing to sneeze at. It’s good cash flow management,” Mr Wilson said.

The Government’s May fiscal report said: “Revenue receipts totaled $256.6m, a 23.8 percent ($49.3m) increase year-over-year. Tax collections totaled $221.1m, supported by $98.9m in VAT receipts; $65m in international trade and transactions taxes; $49.2m in other taxes on goods and services; and $6.9m in property taxes.

“Non-tax revenue collections of $35.4m were explained by $19.3m from the sale of goods and services, and $16.1m in other non-tax revenue.” As for expenditure, the report added: “Total expenditure aggregated $332.5m, a 15.4 percent ($44.3m) increase compared to the same period of the prior year.

Recurrent expenditures totaled $296m, an 8.6 percent ($23.4m) increase compared to the prior year. Outlays comprised $67.6m in personal emoluments; $71.9m on the use of goods and services; $71.2m in public debt interest payments; $34.8m in subsidies; and $20.8m in social assistance and transfers. Capital expenditures increased by 133.9 percent ($20.9m) to $36.5m, comprised of $30.8m to acquire non-financial assets and $5.6m in capital transfers.”