The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

There is “an undeniable moral case” for improving compliance with the Bahamas’ existing taxes, a private sector report suggesting such initiatives could boost real property tax collection alone by $70 million annually come 2024.

The Oxford Economics study on six tax reform scenarios said it had not focused heavily on improving compliance levels with existing taxes, indicating this would have been difficult to incorporate into empirical models.

However, the report, produced for the private sector’s Coalition for Responsible Taxation, concluded that just focusing on real property tax, under a 6 per cent payroll tax environment, could yield significant returns.

“It was shown that simply focusing on property tax alone had the potential to raise an additional $70 million by 2024,” the Oxford Economics study said.

“And, while the macroeconomic impact of relying on improved compliance compared to measures which widen the existing tax base may not be substantial, there is an undeniable moral case for doing so.”

The findings will likely strengthen the arguments of those in the Bahamian private sector who had advocated the Government should focus on ensuring greater compliance with its existing taxes before looking to implement new ones.

The International Monetary Fund’s (IMF) recent Article IV report highlighted the persistent, and deep, weaknesses in this area by noting that Customs duty and real property tax compliance rates were both below 50 per cent.

And the Oxford Economics study said there were numerous issues related to Value-Added Tax (VAT) that it could not incorporate in its research, such as “the implications for the growth of the informal economy” and the best way for businesses to reclaim payments.

Other questions raised by the report were the size of the administrative burden VAT will impose on small firms, and whether this would place them at a competitive disadvantage to larger counterparts with “sophisticated accounting procedures in place”.

And there was also the issue of how “deliver efficiently targeted transfers to poorer households, perhaps through means tested transfers” under a VAT where few goods and services were exempt.

“Any far-reaching package of fiscal reform will have significant implications at the microeconomic level, creating various groups of relative ‘winners and losers’,” Oxford Economics said.

“Meanwhile, on the expenditure side we hope that our analysis will offer value in providing an insight into the scale of adjustment required with a given set of tax reforms.

“However, the model cannot offer much guidance about the appropriate means of expenditure reduction which would need to be considered carefully by the Government, taking into account implications for equity and efficiency.”