NASSAU, BAHAMAS — The country must begin to take a serious look at tax reform given the need for additional revenue as a result of budgetary pressure and the widening fiscal deficit, a local economist has urged.
Rupert Pinder, a University of the Bahamas professor, said: “I believe that now is as good a time as any to talk about tax reform. There is no question that the government’s budget is going to come under severe pressure and and we are going to be running a significant fiscal deficit.
“Running these huge deficits is going to increase our debt burden and is going to impact the budget through debt servicing. With a shrinking economy there is a greater pressure in terms of social safety net programs as well as concessions to businesses What is likely going to happen in my view in the medium to long term is we will continue with these consistent fiscal deficits.”
Pinder added: “Going forward we are likely to see greater pressure on the budget, bearing in mind we just came out of a major hurricane where our second and third largest economies were majorly impacted. The budget was already under pressure and now you add COVID-19.
“There is only so much you can cut in terms of non-essential areas and there is still pressure on the budget in terms of spending on social safety net programs.”
Pinder noted that there are some businesses that will not survive the COVID-19 crisis, which will also impact the government’s tax base.
“I think there will be pressure to look for revenue sources, whether it be new revenue sources or new ways of taxation,” said Pinder.
“Our current tax model is is largely consumption based. The vast majority of government revenue comes by way of import duties and Value-Added Tax (VAT). That tax system is highly regressive, meaning it places a disproportionate burden on those at the lower end of the spectrum.
He continued: “While we have immediate problems with COVID-19, in the medium to long term we have to start the conversation in terms of tax reform and a progressive form of taxation, meaning a system that has some bearing to a person’s level of income. We can debate what form that will take, whether income or payroll tax etc.”
Pinder said that as a part of the discussion on tax reform, the country must also assess the level of concessions or foregone revenue given to foreign direct investment projects.
“Over the years we have given a lot by way of concessions for foreign direct investment. Some of that is foregone which could help in terms of alleviating budgetary pressure,” said Pinder.