Bahamas Tax Measures Said To be Deterring Investment

by Phillip Morton, Investors Offshore.com

19 August 2010

Bahamas’ non-partisan, not-for-profit think tank, the Nassau Institute has warned that fiscal measures introduced by the Bahamas may be warding off potential investors to the detriment of tax receipts.

The Institute underscored that entrepreneurial activity is key to bringing about recovery in the Bahamas economy, but has warned that the government’s measures, introduced in the Budget, run contrary to what is required.

In comments on August 14, the Institute said:

“For starters, a government should not be destabilizing the business community with excessive taxation nor blindsiding them with rule/regulation changes that do not seem to be well thought out. Despite this, the Bahamas economy has certainly had an abundance of new taxation and regulation in recent months.”

“The government, while finally realizing that their profligate borrowing and spending must be brought under control, should also accept that investor confidence is rattled when there is uncertainty as to what public policies to expect next. There is a delicate balance between ‘reasonable’ taxes and rules/regulations and over taxing and the introduction of burdensome red tape.

In the 2010 budget, Bahamas Prime Minister, Hubert Ingraham announced hikes to license fees and taxes across the board, along with measures to bolster tax collection and compliance. These included:

• An increase of 2% on the various rates of stamp tax on realty transactions;
• An increase in the stamp tax on bank transactions by BMD0.15;
• Increases to the Bahamas’ air and sea departure taxes, by BMD5;
• An increase to the hotel room tax, by 10%;
• An increase of 50% to the annual fees paid by retail banks;
• Limitations to duty concessions under the Investment Encouragement Act, to five years from the date of approval;
• Fees increases under the International Business Companies Act;
• Broad increases to import duties;
• Significant increases to the environmental levies on vehicles, on the import of such, and to the annual fees paid by motorists; and
• Higher taxation on the domestic production of alcohol.

Few measures were included to support businesses. These were mainly long-needed changes to import tariffs, including:

• The rate on computer networking equipment was reduced from 45% to 10%;
• 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 were made tax exempt, the government rescinding the 10% rate previously in place.

Lastly, new micro business start-ups were given a boost with a two-year holiday on the payment of a business license.

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