Bahamas Budget Seeks New Revenues

by Amanda Banks, Tax-News.com, London

10 June 2010

Bahamas Prime Minister, Hubert Ingraham has released details of numerous tax proposals in his 2010 budget that aim to increase tax revenues for the government as it attempts to rein in its drifting deficit.

Ingraham announced hikes to license fees and taxes across the board, along with measures to bolster tax collection and compliance.

Ingraham’s ambitious fiscal consolidation plan targets a deficit of just BMD227m (USD227m) in FY2010/11, down from the BMD425m recorded in FY2009/10. This will bring government debt to within 3% of the territory’s gross domestic product (GDP) in 2010/11, from 5.7% of GDP recorded at the end FY2009/10.

Coupled with belt-tightening measures, the government has assigned itself a target of improving its recurrent revenue to GDP ratio to 19.7% in 2010/11, which would generate total revenues of BMD1.5bn. Looking ahead, the government has said it will be looking to generate revenue worth 20 cents for every Bahamian dollar the economy produces, starting next year.

“A number of tax rates and administrative arrangements [would be] modified to produce the additional revenues that are required to achieve the planned and required increase in the revenue yield of the tax system,” Ingraham said in his budget speech. To further facilitate this, Ingraham explained that “ongoing efforts to enhance revenue administration and collections will be redoubled and further strengthened.”

The salient features of Ingraham’s tax plan include:

• The various rates of stamp tax on realty transactions are being increased by 2%. This will not impact the continuation of exempting first time homeowners from the payment of stamp tax on a dwelling home or property for the construction of a dwelling home valued up to BMD500,000;
• Stamp tax on bank transactions is being increased by BMD0.15 with effect from July 1, 2010;
• The Bahamas’ air and sea departure taxes are being increased by BMD5 effective July 1, and the increase for cruise ship passengers is to come into force on October 1, after the summer season;
• The hotel room tax is to be increased to 10%, effective July 1;
• The annual fees payable by retail banks are being increased by 50% to provide for "more equitable taxation";
• Duty concessions under the Investment Encouragement Act will now be limited to five years from the date of approval;
• Fees under the International Business Companies Act are to be increased, although Ingraham did not reveal specific details;
• The duty on items imported temporarily is to be increased from 7% to 10% for every three months that the items are in the country; and
• A two-year holiday from the payment of a business license on new micro business start-ups, as defined in the Business License Act.

On vehicle taxation, Ingraham announced that the government would amend the categories that apply with regard to the application of the Bahamas’ annually paid tax on vehicles, which is currently levied based on several characteristics. The new system will replace the old regime, with its 19 different rates, with a 3-tier system based on weight.

Ingraham also announced that the environmental tax on the import of vehicles would also be amended. The government plans to simplify the system to promote the use of more fuel-efficient vehicles. “It is proposed to reduce the number of excise tax rates on cars and trucks to two: Firstly, a rate of 65% on passenger vehicles will be introduced on vehicles with an engine of 2000 cc or less; and a rate of 85% will be placed on all other passenger vehicles and trucks,” the Prime Minister said.

On alcohol taxation, the government proposes to reduce the differential between taxation on domestic and imported beer. Accordingly, the Spirits and Beer Manufacture Act is to be amended to provide for the rate of tax on domestic production to be increased from BMD4 to BMD6 per gallon. It is also proposed that the duty concessions offered under the Spirits and Beer Manufacture Act be eliminated.

Lastly, Ingraham disclosed changes to tariffs applied by the territory “to further rationalize rates and to continue the simplification of the tariff structure:

• The rate on computer networking equipment is being reduced from 45% to 10%;
• LED light bulbs will now be exempt from import tariffs, to bring the rate in line with that placed on compact fluorescent bulbs;
• The rate on sheet rock board is being reduced from 25% to 10% to bring the rate in line with cement board;
• The rate on tankless water heaters is being reduced from 45% to 10% to promote energy efficiency; and
• Aircraft parts will now be tax exempt, the government rescinding the 10% rate previously in place;

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