NASSAU,BAHAMAS- The Organization for Responsible Governance (ORG) has warned that while the Government’s recent VAT exemptions and adjustments have been received by many as welcome relief, “VAT exemptions—particularly broad or politically driven changes—carry significant long-term implications for fiscal sustainability, fairness, compliance, and trust in public institutions.”
In a policy brief released on January 16, 2026, ORG acknowledged the real and sustained cost-of-living pressures facing Bahamians and affirmed that relief matters. However, the organization urged that VAT policy be treated not only as economic policy but as governance policy, requiring transparency, consultation, and evidence-based decision-making.
ORG’s policy brief argues that while VAT exemptions may appear pro-poor, international evidence consistently shows that “strong VAT systems in developing countries perform best when they are broad-based, coherent, stable over time, and designed with minimal exemptions.”
The brief warns that exemptions can be poorly targeted and “may disproportionately benefit higher-income households while weakening the VAT system’s revenue reliability.” It also highlights that public trust in institutions remains fragile, making VAT policy a governance issue as much as an economic one.
According to ORG, VAT exemptions can create unintended distortions and reduce transparency in pricing. The policy brief explains that where goods are exempt, businesses commonly cannot reclaim input VAT paid earlier in the supply chain, “resulting in VAT becoming embedded in costs and reducing transparency in final pricing.”
The organization also notes that World Bank guidance and applied research show exemptions can “reduce transparency and create inefficiencies through non-recoverable input VAT and distortions across sectors,” making the VAT system harder to administer and more vulnerable to disputes and avoidance.
ORG highlights that exemptions are frequently justified as pro-poor measures, but global evidence suggests they are often poorly targeted. The brief notes that “wealthier households typically consume more and therefore may benefit more, in absolute terms, from VAT exemptions on widely consumed items.”
It further points out that institutions such as the IMF have emphasized that exemptions and multiple rates complicate VAT systems, weaken collections, increase compliance costs, and often fail to achieve intended distributive outcomes.
The policy brief emphasizes three key characteristics of effective VAT systems in developing countries: broad VAT base with minimal exemptions to ensure stable revenues and reduce evasion, policy stability to support business planning and compliance, and targeted social protection measures to support vulnerable households without weakening the tax base.
ORG urged the public and policymakers to revisit the 2014 VAT recommendations from the Coalition for Responsible Taxation (CRT), noting that these recommendations remain relevant and were developed with expert guidance and economic modelling.
The brief also emphasized that CRT recognized public acceptance of VAT reform depends on transparency and recommended implementing the Freedom of Information Act (FOIA) and whistleblower protections. ORG described these reforms as “one of the most significant unresolved recommendations,” stressing that “Tax systems require legitimacy. Legitimacy requires trust. Trust requires transparency.”
The organization also warned that VAT policy in The Bahamas has been subject to shifting exemptions, inconsistent rationales, and limited consultation, creating policy volatility and undermining public confidence.
ORG stated that tax policy must be approached as national policy, not electoral strategy, and that “political cycles should not determine fiscal architecture.”
ORG supports cost-of-living relief but “does not support expanding VAT exemptions without clear evidence, transparent impact analysis, and public consultation.”
The organization calls for publication of projected revenue impacts, identification of how fiscal losses will be offset, distributional analysis showing who benefits most, a credible plan for monitoring whether price reductions reach consumers, and institutionalized consultation before decisions are finalized.
ORG also insisted that VAT policy be depoliticized through long-term frameworks and non-partisan technical review mechanisms, and emphasized that FOIA and proactive fiscal disclosure are essential for rebuilding trust.
ORG recommended that the Government publish a formal VAT Reform and Exemptions Framework outlining rationale, goals, and guiding principles. It also called for fiscal impact statements for all VAT changes, structured stakeholder consultation protocols, use of targeted social protection mechanisms instead of broad exemptions, urgent advancement of FOIA implementation and whistleblower protections, and stronger proactive fiscal disclosure.
The policy brief concludes that “VAT exemptions may provide short-term relief, but without strategy and transparency they may weaken the country’s long-term fiscal resilience.”
ORG urged that sustainable fiscal reform requires consultation, evidence-based design, transparency, and public trust, warning that “The Bahamas cannot afford tax policy driven by politics or characterized by inconsistency.”
“Tax relief matters. But so does trust—and trust requires governance,” the organization concluded.
