Smith: IMF’s tax reform recommendation needs deep analysis
On the heels of another recommendation by the International Monetary Fund (IMF) for The Bahamas to reform its tax structure, a former minister of state for finance is warning that following some general prescription by the IMF could put the country in a worse off position.
In its Article IV Consultation on The Bahamas, released on Monday, the IMF said current global trends in taxation present The Bahamas with an opportunity to reform its tax system. The document highlighted that The Bahamas does not levy taxes on income, capital gains or inheritance.
However James Smith, who was also a central bank governor, said deep analysis of the actual efficiency of these types of taxes in the Bahamian economic environment is imperative before any decision can be taken.
“My feeling is that it’s a matter that has to be analyzed and studied very carefully with particular reference to our existing conditions within The Bahamas,” Smith said in an interview with Guardian Business yesterday.
“Failing to do that, it’s possible that we might follow some general prescription by the IMF or some other outside body and we may very well be worse off. I’m not making a prediction, I’m merely saying it’s the kind of study that needs to be very particular and very comprehensive before moving in any direction.”
Smith said the theory that dependency on border taxes in The Bahamas is extremely high and most heavily impacts low income people is well known, however there’s little assurance that the government has the will to impose stiffer tax collections on the more wealthy.
“Now in terms of perhaps using some additional tax measures, or perhaps even a different tax regime, I don’t jump to that conclusion without analysis because there are some things in The Bahamas that may not lend themselves well to traditional income tax. First of all, you’ve got very high unemployment. Secondly, you’ve still got a history of tax evasion and we don’t have good records,” he said.
“And then thirdly, the wealth distribution in The Bahamas is skewed towards the wealthy who – even in developed societies – tend to pay less or nothing at all. I think that’s the most important point in The Bahamas, in the sense that if we go to a traditional income tax system and we are unable to get a sufficient level of taxes from the low-income people, we certainly are not going to make it up from the high-income people, who will find ways and means of avoiding it. I think in The Bahamas a small percentage of individuals are responsible for a great percentage of our national income, and they are also influential and like to use that influence to resist any efforts to move toward a more equitable form of taxation.”
Paige started working as a business reporter in August 2016.
Education: Palm Beach Atlantic University in 2006 with a BA in Radio and Television News
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