IMF Urges Bahamas To Reform Taxation

by Amanda Banks, Tax-News.com, London

12 August 2005

The International Monetary Fund has urged the government of the Bahamas to continue a policy of fiscal tightening in order for the economy to reach its growth potential, suggesting that comprehensive tax reform is needed to take the country forward.

The IMF Survey noted that low inflation, a sound banking system, and generally prudent fiscal policies have set the stage for private-sector-led growth. However, the IMF stated that challenges remain, most notably the government deficit, which rose sharply during the economic slowdown of 2001/2002 and remains above 3% of gross domestic product.

"To this end, a comprehensive tax reform — entailing the introduction of a value-added-tax or sales tax and a lowering of import tariffs — would help sustain revenues and reduce vulnerability to external shocks, while also facilitating the possible accession to the World Trade Organization," the IMF report stated.

On the expenditure side, the IMF stressed the importance of containing public sector wages increases to maintain international competitiveness, especially in the tourism industry.

Fiscal strengthening, it added, should also be supported by structural policies and private infrastructure investment, which in turn would help diversify the economy.

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