NASSAU, BAHAMAS — The Fiscal Responsibility Council (FRC) has recommended a study of the country’s tax system be expedited to facilitate early deliberations and conclusions on the most appropriate tax system for The Bahamas.
The Fiscal Responsibility Council, in its assessment of the 2021-2022 budget and the Davis administration’s supplementary changes, also noted that certain tax concessions grant different treatments for Bahamian nationals and foreign nationals, “which presents challenges to the overall equity of the existing tax concession regime”.
Certain tax concessions accord different treatments for Bahamian nationals and foreign nationals, which presents challenges to the overall equity of the existing tax concession regime.
“During debate of the 2021/2022 budget, the government communicated its commissioning of a study of the tax system of The Bahamas, and various options for tax reform,” the FRC said.
“Given the inherent limitations of the current consumption-based tax system to better target tax concessions, the FRC recommends that the study of the current tax system be expedited and leverage past studies to facilitate early deliberations and conclusions on the most appropriate tax system for The Bahamas.
“Further, certain tax concessions accord different treatments for Bahamian nationals and foreign nationals, which presents challenges to the overall equity of the existing tax concession regime.”
The FRC noted: “The council noted that the 2021/2022 budget includes several programs which commit to significant tax concessions for individuals and businesses, under the theme ‘Accelerate Bahamas’.
“The extension of the Special Economic Recovery Zone (SERZ) for Abaco and Grand Bahama and the designation of the special economic zone for the southern islands are temporary tax concession programs intended to catalyze economic activity within the respective geographic regions.
“The programs offer tax concessions across a range of taxes and fees, however, there are no published qualifying criteria regarding expenditures, except certain programs that have been identified that require notional dollar thresholds.”
It further pointed out that based on the breadth of the measures, it is reasonably expected that the potential losses will be significant.
The FRC also noted that the International Monetary Fund (IMF) has made recommendations for the development and tabling of an annual tax expenditure budget, along with the estimates of revenue and expenditure.
“Tax expenditure budgets aid in exposing possible avenues of revenue leakage and can spur improvements in the equity and efficiency of a tax system,” the FRC noted.
“The existing predominantly consumption-based tax system of The Bahamas limits the ability of the government to target policies toward particular cohorts of the population, as VAT (value-added tax) and duty exemptions are broad policy tools that are generally more costly, less equitable and less efficient than more targeted direct expenditures.”
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