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.
Rupert Pinder has said nothing about how we got here.First of all there is virtually no foreign investment going on in Grand Bahama and the Professor wants to cut benefits given to foreign investors?There are no jobs other than government jobs so the government will tax only the same money they pay in wages.Not one word about the size of the Government that must be reduced by 60%.The rating agency’s have reduced the government bond rate to junk bond status.There will be no more borrowing and the government will not be able to pay their payroll.Foreign Investment is the only way there can be a tax base.Don’t forget the taxes that were coming from Abaco and GBI won’t be coming back for decades.
Perhaps you can look up a few easily found facts and answer the following questions:
1. Can you name a country with a higher level of foreign investment per capita than the Bahamas? If so, please do. Ours was 997 million last year (a mediocre year for us) which amounts to $2,700 per person. Please let’s stick to facts, rather than repeating things without reflection. Please name one a country with a higher level of FDI per capita. Just one.
2. Can you name a country with a lower level of taxes/revenues relative to GDP (i.e. size of government) than the Bahamas? Ours stands at 18%. The world norm is 45% and the USA is 40%.
This is because we place all our taxes on the poor and CRAZILY place no progressive taxes on income or wealth. That is called regressive taxation and NO OTHER COUNTRY pursues such a regressive tax policy.
Please, try to access facts before you weigh in.
In investment policy has FAR too many incentives. Attracting people to invest in the Bahamas is as easy as taking milk from a baby. They invest because they make crazy money here. What is less easy is conducting a sensible tax and investment policy that ensures BENEFITS flow from the investment we have. That is why we should be MORE selective and LESS concessionary. Just look at Oban and the stupid deal on Our Lucaya as examples of how NOT to deal with investors. Both these deals will be a net drag on our economy.
Rupert Pinder is correct. But he does not go far enough. We need to replace VAT and duties with an income tax, raise Real Property Tax dramatically on high end property and actively take and sell delinquent properties, but ONLY non Bahamians in the family islands and high end property in New Providence.
The problem has never been that we spend too much. (We spend too little) the problem is that we collect too little revenues (18%!!!!!!!) and we collect it from the poor and middle class, whose spending is responsible for converting foreign investment into growth.
I agree with Bro. Pinder’s assertion on the need to have a discussion on taxation review! And this urgently necessary. Our current tax regime is and has been regressive for over seventy years! And we have had black governance for over fifty three years!
This is a poor indictment on black governance!
The government in my view has been borrowing consistently because of inadequate revenue (Taxation). I feel the best way to address this revenue inadequacy, is to implement without delay an equitable form of taxation via
Income Tax, Corporation Tax, Proportional Tax and Progressive Tax.
Custom Duties must be eliminated! and a segment of wage earners must be exempted from Income Tax.
Eliminate the current wage cap on NIB.
Yes, put an income tax in place and of course a corporate tax as well and say goodbye to the rest of the foreign companies doing business here and welcome the Bahamian way of doing things…
if the Bahamas wants to compete for business in the chaos the PM is creating now with huge unemployment coming soon and people not having enough to eat, you will need all the balls and a lot of incentives. Higher taxes? You know where they will go? Into nonsense projects and the pockets of some people in and close to power… Do you really trust the government to actually use your extra taxes to help you? Come on… Wake up. Bring manufacturing, bring food production, container farming, solar energy to the islands. Now is the time. Globalization is slowing down, we can help the US get rid of their dependency on many things manufactured in China. Only the US and the Chinese can help us now. And I am convinced that the US would be very interested in outsourcing some production to the islands. Clean, no pollution production. Compete with Ireland and Holland for tax schemes for the super wealthy tech companies. They will always look for a way to save some money. We need to grow a back bone, stand up and stand proud without bowing to someone 10000 miles away trying to squeeze us out of our money flows. Support the local companies and support the small and medium businesses in this country. That’s the base of our families and friends. Taxes… who do you want to tax if there is no income? The 100 super rich out West? They have their lawyers and international ways of avoiding any taxation. And if we push too hard, the Caymans have very nice beaches too…