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IMF Praises The Bahamas On Regulation, But Urges Introduction Of VAT

by Amanda Banks, Tax-News.com, London

13 July 2005

The regulation and supervision of the domestic and offshore financial sectors in the Bahamas have strengthened over the last two years, but the government must do more to tackle dwindling tax revenues, according to the International Monetary Fund.

"The IMF's Module 2 assessment report on the offshore financial centre (OFC) was generally favourable, including with regard to compliance with the Basel core principles for bank supervision," the fund noted in its Article IV consultation report.

The IMF report went on to observe that in 2003-04, steps were taken to implement the report's recommendations, including the closure by mid-2004 of all banks without a meaningful physical presence. Also, bank soundness indicators improved somewhat in 2004, as the share of non-performing loans fell to just under 5 percent and provisioning increased.

On the revenue front, the IMF has welcomed the ongoing modernization of the customs administration. However, the report called for additional revenue measures to be put in place, such as adjustments to user fees, and more crucially, the introduction of value added tax.

"The introduction of a VAT or sales tax and a lowering of import tariffs, would help sustain revenues and reduce the vulnerability of the economy to external shocks, while also facilitating the possible accession to the World Trade Organization (WTO) that the authorities are presently considering," the IMF report stated.

Nonetheless, the report welcomed the authorities' efforts to promote diversification of the economy, including the development of a National Information and Communications Framework to help promote e-commerce in the Bahamas.

The IMF considered that these efforts will help foster a more broadly based growth and reduce the vulnerabilities arising from the high degree of dependence on the tourism sector.

The IMF notice on its 2005 Article IV Consultation with the Bahamas can be found in the Tax News Resources section.

 

 






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