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Tax reform business plan to resolve unemployment
  
Saturday, 16 February 2013 08:52

NASSAU, The Bahamas -- Delivering a business plan with a tax reform is how the Bahamas Government plans to resolve the nation's unemployment phenomenon and stimulate the economy.  

Prime Minister and Minister of Finance the Rt. Hon. Perry Christie tabled a White Paper on Tax Reform in The House of Assembly, February 13, as a means of keeping the Government independent and free of the unpredictable changes of private enterprise.  

The new tax convention would force the Government to impose tax treaties on foreign governments and investors wishing to protect their investments from double taxation based on the residence of companies by reason of domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature, where it is not enough for the foreign investor to be a resident.  The investor that does not pay taxes is not a resident for the purposes of the tax convention because taxes are paid on both the worldwide income and the domestic income.  

"Mr. Speaker, in the 2012/13 Budget Communication, the Government announced that it would address the issue of tax reform as a means of broadening the tax base to include both goods and services.  To that end, I wish to table today a White Paper on Tax Reform to Secure Adequate Revenues for the Future that will serve as the basis for extensive public discussions and consultations.  The overarching objectives of the tax reform proposals in the White Paper are threefold, namely:  to secure an adequate revenue base in support of modern governance; to establish a tax structure that promotes economic efficiency and stronger economic growth; and to make the tax system more equitable," said the Prime Minister.  

"As a means of achieving these objectives, it is proposed that a Value Added Tax be introduced as of July 1, 2014 as part of a fundamental reform of the tax system.  In tandem, it is also proposed to:  effect the eventual reductions in import duty rates that will accompany The Bahamas' accession to the World Trade Organisation (WTO); reduce excise tax rates to compensate for the VAT; eliminate Business License Tax as currently structured; and replace the Hotel Occupancy Tax.  By predominantly focusing on goods, our tax system is out of balance with international norms.  It does not share the tax burden with those who are providing services in a way that is either fair or adequate."  

Mr Christie said a "goods-centric" taxation system is inherently unfair as it makes poor, struggling Bahamians pay the same in taxes as the wealthier citizens do.  In short, the current tax system is regressive and takes no account of varying levels of means within the society.  

"Reform of the tax system is therefore essential.  Indeed the need for it is becoming more urgent with each passing year.  As was set out in the last Budget, important initiatives are also now underway to modernise and improve revenue administration, including the Customs Department and the Real Property Tax Office, as well as the establishment of a new Central Revenue Agency."  

Prime Minister Christie said the Government believes that its programme of tax reform, when fully implemented, will result in considerably greater and more efficient revenue collection.  He said the proceeds of which will better equip the Government to meet the increasingly complex financial needs of our nation.  

"More fundamentally, it will bring into being a new system of taxation that shares the tax burden more fairly and equitably.  The Government invites the public to provide comments and feedback on this White Paper so that it can thereby be guided and assisted in crystallising taxation policies and in preparing the relevant legislation for presentation to Parliament."  

The White Paper confirms that studies undertaken in the last several years by the International Monetary Fund (IMF) and Crown Agents (CA) have found serious deficiencies, of both a structural and administrative nature, in the current revenue system.  Structurally, the system has a relatively narrow tax base that is reliant on customs duties, on imports and a few other taxes and fees on international trade, which account for well over one-third of Recurrent Revenue ranging more on the lower mean average of approximately 10 percent on a scale from 0.4 percent to 36.5 percent.  

"As a result of numerous concessions, the tax system effectively captures only a relatively small portion of the overall economy.  As well, the system essentially covers goods to the virtual exclusion of services, with the latter representing 60 to 70 percent of household expenditures," said the Prime Minister.

"As well, by international standards, the system yields relatively small revenues relative to the size of the economy.  It also generates revenue streams that tend to grow more slowly than the economy.  This is because the consumption of goods tends to fall as a share of total consumption, as living standards increase," he said.


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