The Tribune

By NATARIO MCKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

THE BAHAMAS’ high Customs tariff rates could be seen by as a barrier to trade by international organisations, a senior financial executive said yesterday, noting that the Government had to look at alternative revenue streams.

Kevin Burrows, senior vice-president of CFAL, speaking at yesterday’s session of the Bahamas Institute of Chartered Accountants (BICA) accountants’ week, said this was one of the reasons the country needed to look towards tax reform.

“The Bahamas has entered into a number of international trade agreements, the Economic Partnership Agreement (EPA), and the current administration continues to move toward our full membership in the World Trade Organisation (WTO),”Mr Burrows said.

“The Bahamas’ average tariff rate is 33 per cent. Most countries that accede to WTO have rates between 9 per cent and 20 per cent. Our high rates of duties are definitely going to be deemed as a barrier to trade by these bodies, and there is already pressure on us to reduce them or eliminate some of those tariffs completely.

“The clock is already ticking for us. Our EPA obligations with Europe require that we reduce these tariffs by 2014.”

Mr Burrows added: “Our current tax system based on Customs duties is most obviously not providing the Government with the revenue it needs to support the current expenditure.

“This could be framed as a government spending problem. Our revenue is about 19 per cent of the total GDP, and that is versus the global average of 29 per cent. Our tax base is pretty narrow and completely leaves out the services-based economy, and it also requires merchants to pay their taxes up front at the point of import, prior to making a sale to consumers, so basically they have capital tied up having already prepaid to theGovernment.”

Addressing Value Added Tax or VAT, Mr Burrows said: “VAT is a consumption-based tax much like a sales tax, where it is basically collected in pieces all along the production chain.

“It is estimated that over 70 per cent of the world’s population now lives in countries that apply VAT in some form or the other. It has come to establish itself as the dominant consumption tax out there.

“VAT tax rates generally vary between 10 per cent and 20 per cent. For the Bahamas, as we think about this, the final rate is going to depend on how much revenue we need to raise to replace other taxes, as well as how much additional revenue we may need to close the deficits.

“When we talk about taxation or tax reform, ultimately the conversation moves to VAT, and whether we need to be changing to value added tax. VAT is the front runner to supplement or completely replace our system of customs duties.”

Mr Burrows said government spending has outpaced tax revenue, and has done so by greater and greater amounts since the recession of 2008.

“We have really been increasing government deficits and been forced to borrow the difference each year.,” the CFAL executive said.

“Before the whole 2008 crisis, our primary fiscal deficit was really manageable. We have seen government debt balloon from $2.6 billion in 2007 to what we have today. Even after the recession kind of goes away, a lot of that spending and the size of the deficit gap is really going to stay. We have to find a way to close that gap by either cutting spending or increasing the revenue side and obviously tax reform is aimed at the latter.”