The International Monetary Fund (IMF) has recommended that The Bahamas review its taxation system and create one that is more equitable.
“Fiscal policy should play a greater medium-term role in achieving public policy objectives, including greater income equality,” the IMF said in its staff concluding statement of the 2019 Article IV Mission to The Bahamas.
“The Bahamas does not levy income or capital gains taxes, relying mostly on VAT, business license fees, and international trade taxes.
“Global tax trends and the prospective accession to the (World Trade Organization) WTO thus present an opportunity for a comprehensive review of the Bahamian tax regime with a view to achieving a more equitable and less distortionary tax system.
“To strengthen transparency and inform future policies, a quantitative review of existing tax and other investment incentives is recommended.”
The government implemented VAT at 7.5 percent in January 2014.
Last year, in a move that was met with significant public criticism, the Minnis administration increased the rate to 12 percent.
Numerous critics have pointed out that VAT is a flat-rate consumption tax, that is fundamentally regressive as it disproportionately impacts the finances of poorer households which spend larger percentages of their incomes to pay for basic goods and services.
While he served in opposition, Prime Minister Dr. Hubert Minnis referred to VAT as “a regressive taxation system…which has the almost certain potential to significantly and negatively increase the cost of living in every sphere upon the backs, particularly, of the poorest Bahamians, and the long suffering and shrinking middle class”.
A revision of the tax regime was also advised by Vulnerability Assessment Study by BKP Development Research & Consulting, which recommended that The Bahamas implement income and corporate taxes in order to compensate for revenue losses that will result from accession to WTO.
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 the year.
In preparation for that accession, the IMF statement also called on the government to address what it called “structural impediments” in the country.
“Addressing structural impediments and preparing the economy for a further gradual opening is critical,” it said.
“Several steps have been taken to address long-standing structural issues, boost private investment, and lower the cost of doing business.
“Planned accession to the World Trade Organization (WTO) makes it even more urgent to tackle remaining impediments.
“Lowering energy costs, improving private sector credit access, and tackling skills mismatches in the labor market are critical priorities.”