A Vulnerability Assessment Study by BKP Development Research & Consulting recommended that The Bahamas implement income and corporate taxes in order to compensate for revenue losses that will result from accession to the World Trade Organization (WTO).
The report, which was updated last April, said, “The revenue impact of WTO accession will be sizable, due to the required reductions of many applied tariffs.”
The Bahamas currently holds WTO observer status, but the government has expressed its goal to complete negotiations to obtain full membership by the end of this year.
According to Chief WTO Negotiator Zhivargo Laing, The Bahamas will have to decrease its customs duties on average from 30 percent to 15 percent.
The report noted that the revenue loss from decreasing customs rates is expected to be in the range of $95 million to $135 million.
“…The government would be well advised to develop options for compensating the revenue losses, in particular over the longer term,” it said.
The report advised that the government increase the value-added tax (VAT) rate, but it warned that an increase to a rate of 15 percent would still not be enough to fully offset the losses resulting from lower tariffs.
“Consider introducing income and corporate taxes,” it said.
“Reducing concessions and exemptions, and increasing VAT and excise taxes, will be insufficient to offset losses in tariff revenues. The introduction of other taxes should be considered to broaden the tax base and expand the country’s fiscal policy space.”
Since the report was updated, the government increased VAT from 7.5 percent to 12 percent in an effort to increase revenue.
While the move has been touted by the Free National Movement (FNM) as a success, the opposition has pointed out that the VAT increase did not increase overall revenue as much as the government had hoped it would.
Shadow Minister of Finance Chester Cooper, in response to Minister of Finance Peter Turnquest’s mid-year budget statement in February, noted that government revenues were below target despite the increase in VAT.
Cooper expressed his concern that the government would have to increase its tax rate to meet budget projections.
Turnquest, however, asserted that the government is still in line to meet its deficit target with plans to further trim spending.
He also assured the public that the government has no intention to further increase the VAT rate.
“It is no intention on the part of this government to increase the value-added tax. There is no such discussion, preliminary or otherwise,” Turnquest said.