Bahamas Tax System Under Review
In its most tangible move yet to begin the process of overhauling the country's tax structure, the government has hired a U.K-based consultancy firm to review the present system and make recommendations for change.
"We've [made] good progress," Minister of State for Finance James Smith told the Journal.
He said the government has engaged the services of two of the foremost Value Added Tax (VAT) experts who are a part of the Crown Agents group.
Minister Smith said that once this study is completed, the government will make a determination on the way forward.
"The whole idea is to look at this new tax regime [to determine] if it's something we really want to do," he added. "If we were to change from one to the other, do we do so immediately? Do we do so over time?"
VAT is a form of indirect tax applied to goods and services that increases the prices of those goods and services.
Minister Smith noted that, "We can have an efficient tax regime which would benefit the government from the point of view of increased revenues, the public from lower prices and the businesses by releasing them from tying up funds in inventory."
For quite some time, government officials, economists and others in the private sector have been pointing to the need to overhaul the system of taxation in The Bahamas, given that various pending international trade agreements require discriminatory border taxes to be abolished.
The need exists for The Bahamas to depend less on customs duties, Minister Smith has said repeatedly, while pointing to the enormous challenges involved in instituting a new system.
"We are engaging the international trade, the [Free Trade Area of The Americas], the [World Trade Organization] and even looking at the [Caribbean Single Market and Economy] and for all international trade agreements, they start off with asking you to roll back tariff rates because tariffs are generally regarded as restraints to trade," Minister Smith said.
"But for us more importantly the bulk of our revenue comes from import duties and they are very distortionary in the sense that they are what the economists would call regressive. They're applied in such a way that the lower income households bare the brunt of the tax because it's essentially a consumption tax."
He said the government is working on tax overhaul "quite earnestly."
"If we decide to go forward, clearly I would have to get the green light from the government and I would have to discuss with the wider community the way forward," he said. "We've still got some things to do. Suffice it to say, it is in the pipeline."