NASSAU, BAHAMAS – The Fiscal Responsibility Council (FRC) has recommended that a study of the country’s tax system be expedited to facilitate early deliberations and conclusions on the most appropriate tax system for The Bahamas.
The Budget Responsibility Council, in its assessment of the 2021-2022 budget and additional changes from the Davis administration, also noted that some tax concessions accord different treatment to Bahamian nationals and foreign nationals, “which calls into question the overall fairness of the existing tax concession regime”.
Some tax benefits accord different treatment to Bahamian nationals and foreigners, which calls into question the overall fairness of the existing tax benefit regime.
“During the 2021/2022 budget debate, the government communicated its commission for a study on the Bahamas tax system and various options for tax reform,” the FRC said.
“Given the inherent limitations of the current consumption-based tax system to better target tax relief, the FRC recommends that the study of the current tax system be expedited and leverage previous studies to facilitate early deliberations and conclusions on the system. most appropriate tax for the Bahamas.
“Furthermore, some tax concessions accord different treatment to Bahamian nationals and foreign nationals, which presents challenges to the overall fairness of the existing tax concession regime.”
The FRC noted: “The board noted that the 2021/2022 budget includes several programs that commit to significant tax relief for individuals and businesses, under the theme ‘Accelerating the Bahamas.’
“The extension of the Special Economic Recovery Zone (SERZ) for Abaco and Grand Bahama and the designation of the Special Economic Zone for the Southern Islands are temporary programs of tax relief intended to catalyze economic activity in the regions respective geographies.
“The programs provide tax relief on a range of taxes and fees, however, there are no published qualification criteria regarding expenditures, except for certain programs that have been identified that require notional thresholds in dollars.”
He further pointed out that, given the scale of the measures, it is reasonable to expect the potential losses to be significant.
The FRC also noted that the International Monetary Fund (IMF) has made recommendations for developing and tabling an annual tax expenditure budget, as well as revenue and expenditure estimates.
“Tax expenditure budgets help expose possible revenue leakage avenues and can stimulate improvements in the fairness and efficiency of a tax system,” the FRC noted.
“The Bahamas’ current tax system, which is primarily consumption-based, limits the government’s ability to target policies to particular cohorts of the population, as VAT (Value Added Tax) and duty exemptions are political tools expenditures which are generally more costly, less equitable and less effective than more targeted direct expenditures.