The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Estimates that the ‘informal’ economy accounts for around one-quarter of Bahamian output may be too “conservative”, the Chamber of Commerce’s chief executive said yesterday.

Edison Sumner told Tribune Business the results of an Inter-American Development Bank (IDB) study, which pegged the ‘informal’ economy as accounting for between 15 per cent to 28.6 per cent of Bahamian GDP activity in 2012, were “not surprising”.

“The numbers are not surprising at all, and may even be a bit on the conservative side,” he said. “We’ve always had businesses operating informally - hawkers and retail operations that are not licensed.

“It is a real concern that so many companies and businesses operate that way. It’s not unique to the Bahamas, but it still represents a concern to the degree we would like to see more of them being formalised and operating under the rules that govern other businesses in the country.”

The IDB study estimated that the Bahamas has the smallest ‘informal’ sector out of all major Caribbean economies, but it still accounts for a major percentage of economic activity and GDP output.

Firms operating in this sector are frequently described as operating ‘in the shadows’, not paying due taxes such as VAT and Business Licenses, and failing to make National Insurance Board (NIB) contributions on employees’ behalf.

These practices result in an increased tax burden for those Bahamian businesses ‘playing by the rules’, and Value-Added Tax’s (VAT) introduction sparked efforts to ensure such companies pay their ‘fair share’ by coming into the ‘formal’ sector.

“It’s always been the Chamber’s position that we do not support activity in the informal sector,” Mr Sumner told Tribune Business. “It leads to an unlevel playing field, it leads to informality in how we operate businesses in this country.

“They’re not subject to the same rules as those in the formal sector, and may not be paying their fair share of taxes to contribute to infrastructure and the economy of the country. It will be more beneficial for the country to have those businesses operating legitimately in the formal sector.”

The Chamber, in a statement on the Bahamas’ avoiding a second ‘junk’ downgrade, said curtailing the ‘informal’ economy needed to be a key component in the Government’s drive to improve tax enforcement and compliance.

“Further resources should be invested in the area of tax enforcement and compliance to mitigate the opportunity and activities of tax fraud, further improve tax collections efforts and reduce the occurrences of activities in the informal economy,” the Chamber said.

“Once there is efficient enforcement of the rule of law, then there will also be greater revenue streams to the Government, which will lessen the pressure on Government to impose any new or increased taxes on the private sector business community.”

It praised the Minnis administration for continuing to “aggressively pursue outstanding tax collections”, while simultaneously seeking to rein in the debt and government spending.

“We believe that in very large measure the success of the Government’s tax collection strategy is due to the fact that the private sector businesses and employers have been collecting and remitting the taxes on behalf of the Government, which demonstrates that sound public-private partners are effective, and we encourage the Government to continue to engage the private sector to assist in improving the management of the fiscal affairs in the country,” the Chamber added.