The Bahamas must address its regressive tax structure as it seeks to rebuild the economy following the coronavirus (COVID-19) threat, for both “social as well as economic reasons”, professor in the School of Business and Hospitality Management at the University of The Bahamas Olivia Saunders told Guardian Business.
Saunders said The Bahamas’ regressive tax structure, which includes value-added tax (VAT) and customs duties, will likely be an “oppressive device” as the country tries to pull itself up out of the economic slump caused by COVID-19.
“Our regressive tax regime is perhaps the most oppressive device for impeding economic enterprise in the country,” said Saunders.
“We now have a regressive tax on top of a regressive tax. VAT on top of customs duties. The ‘small man’ pays a higher percentage of his income in tax than the rich man.
“In fact, the richer you are in this country, the lower the percentage of your income and wealth goes to paying taxes and therefore, the lower is your relative contribution to maintaining our society.”
Saunders added that consumption-based taxes lead to high prices, especially for low-income Bahamians, who then depend on a large portion of their incomes for survival, leaving them no savings.
“The Bahamas is one of the most expensive countries to live in,” she said.
“Lower-income persons spend a much higher portion of their income on consuming for survival. This means there is little left for savings, which are needed for investing and building business enterprises.
“The high cost of doing business, which is very much related to the tax regime, is a deterrent to sustainable and meaningful business development.
“Furthermore, the tax regime is contradictory to economic diversification. On the one hand, the government says it wants more local businesses to develop and more domestic production. Still, a major source of the government’s revenues is from importing goods produced abroad.”
Saunders added that the ceiling on real property tax is inequitable and should be removed.
“This ceiling is regressive,” she said.
“The person who owns a $100 million property pays less taxes, relatively than the person who owns a $400,000 property.
“The country will have to move to a progressive tax structure that taxes income and wealth more proportionately while reducing the tax burden on lower-income groups.”