Bahamas Government Commited To Tax Reform

by Amanda Banks, Tax-News.com, London

08 November 2005

The Bahamas' Minster of State for Finance, Senator James Smith has warned that the government faces a serious revenue shortfall in years to come unless there is an extensive shake-up of the country's tax system.

As has been the case for several years, the largest source of revenues for the Bahamian government's coffers come from import and export duties, which are expected to reach $507.5 million in 2005/2006, an increase of almost $30 million from the previous year.

However, the country's participation in the CARICOM Single Market Economy will mean the Bahamas will have to dismantle its system of tariffs and customs and accept the CSME's common external tariff.

While the government has yet to draft any formal tax reform proposals, it is widely believed that its preferred option to make up for the future revenue shortfall will be some form of sales tax, most likely a value added tax.

In an interview with the Bahama Journal, Senator Smith observed that the Bahamian economy is valued at approximately $6 billion, yet the government is currently only taxing about $2 billion worth of goods and services. With demand for public services such as healthcare, education and infrastructure maintenance set to grow in the years ahead, he went on to state that the country has little choice but to pull in extra revenues to avoid the risk of deepening deficits and mounting levels of public debt.

"The economy can grow at 6, 7 percent and revenue would grow by about 3 or 4 and if that continues over the next 10 years there’s going to be a wider and wider gap [between revenue intake and expenditure]," he warned.

"So that alone compels you to reexamine your tax regime because the tax effort in The Bahamas is less than it is anywhere else in this region," he added.

According to Senator Smith, the government has recently received the results of various studies into the future of the Bahamas' tax system, and is soon set to launch formal consultations with stakeholders and the wider public to examine the way forward.

Recommended