IMF Headquarters 1 in Washington, DC.
Reader poll
Do you agree with the IMF’s suggestion that the Bahamas introduce a low-rate income tax?
- Yes, I agree.
- No, I do not agree.
625 total votes.
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
THE International Monetary Fund (IMF) last night demanded that the Government take “decisive fiscal consolidation” measures, including the introduction of a low-rate income tax.
The Fund, in a statement on its Article IV review of The Bahamas, urged the Minnis administration to develop “detailed policy measures” for achieving its targeted reductions in the annual fiscal deficit to 1.1 per cent of GDP in 2019-2020.
It suggested that The Bahamas introduce an income tax to replace revenue that will be lost as the Bahamas reduces import duties to fulfil its trade agreement obligations, and urged the Government to develop a “savings buffer” against natural disasters such as hurricanes.
To bring the public finances under control, the IMF called for the Government to impose “a permanent ceiling” on its annual fiscal deficits and “a cap” on its fixed-cost spending that includes wages and rents.
The Fund’s statement said the Government’s direct debt, as a percentage of Bahamian economic output or GDP, had increased by 28 percentage points in just six years as a result of persistent deficits.
“Sharp increases in public debt call for decisive fiscal consolidation efforts to ensure that debt remains sustainable and external buffers are strengthened,” the IMF said. “The sharp increase in the deficit in fiscal year 2017 to 5.7 per cent of GDP pushed central government debt to an estimated 73 per cent of GDP (up from 45 per cent of GDP in fiscal year 2011).”
Many Bahamians are likely to go pale at the mere mention of ‘income tax’, but the IMF called for its introduction on the basis that it will be a fairer tax linked to a person’s ability to pay.
“Over the medium term, introducing a low-rate income tax as import duties are further reduced should make the tax system more progressive and help protect infrastructure and social spending,” it argued.
However, the IMF frowned at the National Health Insurance (NHI) programme left behind by the former Christie administration, describing expanded coverage as “not affordable without new revenues (taxes) to fund it”.
Backing the Minnis administration’s plan to introduce Fiscal Responsibility legislation, it added: “This legislation should include as key elements a simple fiscal rule with a permanent ceiling on the deficit and a cap on current expenditure growth, consistent with a downward trajectory for the public debt-to-GDP ratio; the requirement to incorporate into the Budget process medium-term fiscal projections with their underlying assumptions; an assessment of relevant fiscal risks, particularly those associated with natural disasters, and mitigating policies; exceptional circumstances clauses, triggered only after significant negative shocks.”
The IMF said the Government’s fiscal targets would achieve the desired consolidation, but warned they could only be achieved “by reversing the sharp increases in the wage bill” resulting from the former Christie administration’s pre-election spending binge.
It added that public corporations and state-owned enterprises (SOEs) needed to be restructured to improve their efficiency, while fees for their services needed to allow full cost recovery.
“The new administration has pledged a strong commitment to restore fiscal sustainability,” the IMF said. “Its first Budget envisages a reduction in the deficit to 3.5 per cent of GDP in fiscal year 2018, and sets deficit targets of 2.3 per cent and 1.1 per cent of GDP for the two subsequent fiscal years.
“However, detailed policy measures to meet these targets still need to be developed........ If properly designed and implemented, these initiatives should support fiscal consolidation and strengthen fiscal discipline, accountability, and transparency over the medium term.”
The IMF also called for Bahamian civil servants to start contributing towards their own pensions, with benefits matching contributions, in a bid to tackle the unfunded $1.5 billion public pension liability.
In a nod to the Bahamas’ vulnerability to hurricanes, the IMF also urged the Government to build-in Budget savings to provide “an additional buffer against the fall-out from natural disasters”.
“Incentivising the use of private natural disaster insurance, including through targeted subsidies to improve affordability for low-income households, and making sure that building regulation, land use and zoning guidelines are adequate and reviewed and updated frequently, would enhance economic resilience and reduce fiscal contingent liabilities,” the IMF said.
It added that energy reforms were vital to reducing power costs, and improving reliability. “Moving ahead with the planned issuance of the rate reduction bond by the electricity company is a critical step in this direction,” the IMF said, referring to the financing mechanism both governments have been reluctant to initiate.
The Fund also called for improvements in the Bahamas’ ‘ease of doing business’ and the creation of a Credit Bureau - recommendations that have frequently been made by the private sector.
The “credibility” of the Bahamas’ one:one exchange rate with the US dollar will be enhanced by reducing the Central Bank’s holdings of government bonds, the IMF added, while also calling for an “intensified” effort by commercial banks to restructure their delinquent loans.
“Commercial banks remain liquid and well-capitalised but reluctant to lend in an environment of low growth,” the IMF said. “As of March 2017, the average capital adequacy ratio stood at 27.8 per cent, well above the regulatory requirement of 17 per cent, and liquid assets represented 25.6 per cent of total assets.....
“Despite ample capital and liquidity for the sector as a whole, the stock of commercial bank credit to the private sector has remained flat.”
The Bahamian economy remained in recession during 2016, contracting by 0.25 per cent due to the impact of Hurricane Matthew.
“Real GDP growth is projected to pick up to 1.75 per cent in 2017 and 2.5 per cent in 2018, and to stabilise at around 1.5 per cent over the medium term,” the IMF said. “The baseline scenario is predicated on an expected acceleration in US growth in 2017, the phased opening of Baha Mar, and related construction activity.”
However, it added that the Bahamas faced numerous “downside risks”, with the current account and external reserves “weaker than suggested by fundamentals and desirable policy settings”.
“Over the medium term, the current account deficit is projected to narrow to 7.1 per cent of GDP but would still be above the level consistent with fundamentals and desirable policy settings,” the Fund said.
“At an estimated 2.4 months of next year’s imports of goods and services, reserve coverage remains below traditional adequacy benchmarks.”
Summing up, the IMF said: “The Bahamas has been struggling with a stagnant economy since 2012. Natural disasters, interruptions in the completion of the mega resort Baha Mar, and eroding competitiveness have resulted in declining real GDP and income relative to other Caribbean economies.
“Weak economic activity, compounded with high fiscal deficits, have led to a sharp increase in the public debt burden, and has complicated the resolution of banks’ high levels of non-performing loans (NPLs).”
Comments
proudloudandfnm 7 years, 2 months ago
I will never live in a Bahamas that collects income tax. Our government is useless in eveything but wasting or stealing our money. No way would I ever live in this country with income tax. No way...
gbgal 7 years, 2 months ago
We are being overly taxed now! We pay customs duty, VAT twice on whatever we bring in (the freight costs plus the paperwork costs), the National Ins, the property taxes, and VAT on everything else bought locally! The totals must be 40per cent. If Income Tax would be a one time only tax, under 40%, and eliminating all these others, we might be less burdened. I wouldn't grumble about a low sales tax around 3% for purchase of designated goods/services to be added for use in specific areas e.g. medical, education etc.
DDK 7 years, 2 months ago
No way on the income tax! Screw the greedy IMF! They have become a tank of sharks and piranhas.
BahamaPundit 7 years, 2 months ago
Lock me up now. If income tax is inforced, I will be dodging it like a prize boxer. VAT is bad enough and still no word where it disappeared to. Can you imagine income tax? The only ones this will prosper will be accountants.
BahamaPundit 7 years, 2 months ago
Sp enforced
Well_mudda_take_sic 7 years, 2 months ago
I have said time and time again that the IMF, OECD, IDB, World Bank, Moody's, S&P, etc. etc. all have a connected common agenda to destabilize and bankrupt the Bahamas so that the foreign corporate interests behind these so called international lending, regulatory and rating agencies can feast like vultures on our natural resources at bargain basement prices. The main hideous instrument of their destabilization efforts is the lending teat ("tit) put to the mouths of our incompetent, dumb and corrupt politicians who will suck on it like drunken sailors. This is the tried and time tested successful modus operandi of the developed countries when it comes to the global establishment devouring the resources of lesser developed countries on the cheap! Our new Minnis-led FNM government must avoid sucking on the debt tit as much as possible, notwithstanding being encouraged to do so by these very same international agencies whose advice is aimed at destroying our control of our own economy and destiny.
Greentea 7 years, 2 months ago
Well Mudda- are their agents also planting stories in bahamians head that it might be better to abandon southern islands affected by the hurricane? Because all that language does is devalue the land Bahamians ancestors fought and died for and left their children as a legacy, ensuring that foreign investors and governments scoop it up for pennies on the dollar- and that they are populated by Dominican fishermen and Haitians seeking some peace. I have never heard such stupid, short sighted talk from Bahamians in my life. They have no sense of their history and no sense of the value of their country. China is about to OWN Venezuela because of defaulted loans and the Bahamas aint too far behind because if this government brings income tax- 50 percent of the people who able to pay that tax will leave the country, ensuring the collapse of the economy, increased chaos and violence.
yari 7 years, 2 months ago
Substitute Third World countries for the Bahamas and we are in complete agreement.
ThisIsOurs 7 years, 2 months ago
This reminds me of a discussion Zhivargo Laing had with Rupert Pinder. Mr Pinder made a point that tough decisions had to be made very soon and if the government didn't make them someone would do it for them this was just two weeks ago..
He said, you remember when you were a child and Grammy send you outside to pick the switch to get beaten with? Now if you was smart, you went and pick the switch because at least you had the chance to find a small light switch. Because no matter who pick it, the end result was beatin' was coming.
Why haven't we engaged a TEAM of persons like Mr Pinder and Mr Laing as economic advisors to the Ministry of Finance?
Mr Pinder said at least if the government takes the initiative you have a chance to educate the people and ease the pain. But what has the government spent the first five months doing? -> "Creating drama". They didn't even have the foresight to prepare for a hurricane. People kept asking for a plan and they and rabid supporters said, 'what wrong with y'all, we just get here you know'...well guess what, the IMF just gave a very loud y'all taking to long.
I have to scream, what is KP Turnquest doing??? I don't think he's suited for that ministry and Dr Minnis just sunk all hope with his appointment of a financial secretary who has no professional economic experience. They have no possibility of creating any comprehensive plans to get us out of the mess we're in because they do not have the ability to model the economic effects of their decisions. And we haven't even gotten to who will watch the back door, the space under the table and the contracts awarded. We were supposed to be moving away from this crap. Now we put Fox cousin to watch the chickens.
I've seen a number of not so good predictions come to reality over the past five months, my next prediction is, if Dr Minnis doesn't remove KP and his second and appoint competent people to manage that .ministry, the Income tax money will go the same route as the VAT money and Hurricane Matthew money. The IMF will then tell us what a wonderful job we did implementing income tax, they will then suggest that we prepare for devaluation. A word to the wise is sufficient. Move them people
killemwitdakno 7 years, 2 months ago
If VAT is repealed as promised.
ThisIsOurs 7 years, 2 months ago
If they take away 7.5% VAT and introduce 15% income tax, what difference does it make?
gbgal 7 years, 2 months ago
You would be paying far less if you pay it only the one time! Do you not realise how many times you pay 7.5% on an item before you get it home? It is way more than we believe. Think about it...
Islandboy242242 7 years, 2 months ago
Only if the middlemen are basing their markup on the VAT inclusive rate, which they are not supposed to. If they did the results would be evident. Importing items yourself is a mess yes, with tax on tax and confusing fees here there and everywhere.
ThisIsOurs 7 years, 2 months ago
Yeah, I know, I've been paying for two years and see the price spike:) what I'm saying is, you can rest assured that if the government announces they're "removing VAT", it will be a political ploy. Remember the IMF Is telling them they don't have enough revenue with VAT in place
Even the way they've structured VAT was done to be politically palatable. 7.5% sounded better than 15% but they structured it so they collect at every step in a non-manufacturing chain and that's not the way VAT was meant to work..
SP 7 years, 2 months ago
Thank your UBP, PLP and FNM pirate leaders for decades of collaborative corruption, excluding Bahamians from meaningful mainstream participation in the economic pie which stifled and stagnated growth and their total failure in governance for this one.
Had these greedy pirate bastards allowed more Bahamians to share in the economic pie instead of just their friends, family, lovers and foreigners, the average Bahamian and the country at large would have been in a considerably stronger economic position.
Every country in the Caribbean empowered their people as much as possible and out performed the Bahamas in Real Gross Domestic Product Growth including Haiti with 5.5%-2011, 2.9%-2012, 4.2%-2013, 2.8%-2014, 1.0%-2015, 1.4%-2016
What was Lynden Pindling, Hubert Ingraham and Perry Christie focused on? These men should be tried for treason!
ashley14 7 years, 2 months ago
They have to have money to operate and improve the infrastructure. The problem often misappropriation of the funds. They already have fees attached to everything. Even on tourism, they collect a fee on every tourists that comes in. What do they do with that money. On the hotel rooms the add a 35.00 fee every night your there. Where does this money go. Why can't they even clean up the trash.
GodSpeed 7 years, 2 months ago
The IMF is designed to lend more money to Nations than they can afford to pay back then impose heavy taxation. Nothing surprising here. Next step is bankruptcy then they come in and steal everything.
proudloudandfnm 7 years, 2 months ago
Giving the Bahamian government more money to waste is insane...
Islandboy242242 7 years, 2 months ago
If things worked properly, everyone was held accountable, money wasn't being lost/stolen/diverted here there and everywhere, and people got value for money then maybe; but there's A LOTTTT more that must be fixed first. Having an income tax probably also means that The Bahamas needs to join in on the Totalization Agreements with the US IRS and other nations so that Foreign Residents can offset income taxes paid to country of residence vs country of citizenship.
OMG 7 years, 2 months ago
Reduction in import duty is only effective if the savings are passed along and we all know that especially on the family islands many stores simply pocket the extra cash. As for the National 1Health anybody with half a brain knew that wasn't feasible. Take central Eleuthera where close to a million dollars has been spent simply to rip a hill to provide a hospital. Why do we practice jungle economics and start these grandiose schemes that cannot be afforded. If you can,t staff and stock regular clinics how the hell can you operate all these so called island hospitals. Time to get real.
BONEFISH 7 years, 2 months ago
As the day follows the night,the day that income tax is suggested for the Bahamas Government hto implement has arrived. I was told by several persons in the know this will happen.We collectively brought this on ourselves. Don't blame the IMF. Years of economic mismanagement by successive governments, a stagnant and outdated economic model and irresponsible populace.It is going to be rough.Add to that an inexperienced Financial Secretary and a Finance Minister who seems out of place.
sheeprunner12 7 years, 2 months ago
Our taxation model is a real unfair mess .......... we tax the bottom 60% of the citizens until their eyes bulge with VAT and other service fees and taxes ....... the rich and upper middle class can survive ...... But if all of the population was being taxed fairly by using a staggered income tax rate system ..... 25-15-10% for the three income brackets (over $100,000 - over 40K - over 20K) with 5% VAT and no other fees on gas, customs etc, it will earn far more Treasury income .... and it will be more fair
Gotoutintime 7 years, 2 months ago
Best of luck trying to collect income tax---People owe millions of dollars in Real Property taxes and that is not collected---Hell, some people don't even pay their power bills and they don't seem to have a problem!
sheeprunner12 7 years, 2 months ago
Too much family connections between customers and office staff ..... low levels of professionalism and on-the-job accountability
Islandboy242242 7 years, 2 months ago
Seems like you get the best discounts when you don't pay your bills. Reward those that don't pay while all else suffer...no interest on unpaid Real Property Tax Arrears, breaks on your high BEC bills...it goes on and on.
ashley14 7 years, 2 months ago
Income Tax is taken out before you get your check and the employer pays the government. You never see the money or your right people wouldn't pay it.
The_Oracle 7 years, 2 months ago
"I have said time and time again that the IMF, OECD, IDB, World Bank, Moody's, S&P, etc. etc. all have a connected common agenda to destabilize........." Yes Wellmudda, and we have been borowing an average of 50 million/year from the IMF alone, for the last 40 years. Plus grants and funding from all the others. So all of Minister Mitchells cries of sovereignty could only have been for Local consumption......
VAT, Income, capital gains, all have been on the schedule since at least 2007, but our successive governments have kicked the can down the road while treating the public like mushrooms. "This reminds me of a discussion Zhivargo Laing...." And who do you think "negotiated" and signed onto to all of this on our behalf Thisisours? But wait, it gets better! Remember all those TIEAS we signed with 40 odd countries? And remember a finance Ministry official saying words to the effect" while there is no benefit at this time to the Bahamas...." He gave the game away, but no one even noticed! Do you not think the Bahamas Government has been asking all those countries what assets Bahamians own in foreign lands? I can tell you they have. And they see a huge pot of taxable $$. Reciprocity, I tell you, you tell me. So, where you gonna run to now? Nicaragua? North Korea? There is a financial storm coming that will make Irma seem like a summer squall !! (with no slight or minimization intended to those countries so devastated)
ThisIsOurs 7 years, 2 months ago
I think you're agreeing with me somewhat, I said they're afraid to make the tough decision because it's unpopular. Now someone's come along and made it for them. Made another comment that I don't want income tax but I have a feeling we're at the end of the road with no other option. Bahamians think the options are "tax" or "everything stays the same". I think the options are "tax" or "be like Greece". But no one's saying it. I'm not sure not signing onto information exchange agreements would change anything...our economy would still be in the dumps.
ThisIsOurs 7 years, 2 months ago
I don't think our problem is collecting money. I think the problem is money escaping through holes in the ministry of finance. More money won't make a difference. It's the money management. FNM supporters need to ask some serious questions about the appointment of the financial secretary. Serious questions. How will we get a different result if we use the very same approach?
banker 7 years, 2 months ago
I know an expat who bought a condo on PI. Hasn't paid property taxes in 10 years and no one is chasing him, probably because they don't know that his condo even exists. There are some serious structural flaws in the data collection for property taxes. There are silos of information that do not talk to each other.
SP 7 years, 2 months ago
Brazil’s president charged with leading a criminal organization made up of senior members of his PMDB party with the group allegedly taken $190m (£140m) in bribes in return for contracts at public companies.
http://www.bbc.com/news/world-latin-ame…
Politicians worldwide suspected as bribery scandal unfolds and almost a third of Brazil's current government ministers are facing investigation.
http://www.bbc.com/news/world-latin-ame…
Politicians were having a field day tiefin an ting while the average Joe suffers!
ThisIsOurs 7 years, 2 months ago
Story sounds familiar, Is that Brazil or the Bahamas, sometimes they get these "B" Latam countries mixed up.
Socrates 7 years, 2 months ago
except for those who were asleep, we've seen this push coming for years... poor management of public service, too many lousy gov't corporations propped up by Treasury, lack of accoutability so you have a building burn down, contractor does not have insurance that was a prerequisite to contract award and nothing happens, etc , etc. now you would give the same folks even more money to manage/waste? its going to happen sooner or later unfortunately since we let things get out of control, but dont believe for a minute imposition of income tax will make a difference for the better...
truetruebahamian 7 years, 2 months ago
Bugger off IMF
CatIslandBoy 7 years, 2 months ago
I strongly believe that this FNM administration, under the stewardship of Prime Minister Minnis, is very serious about making a difference in how the people's money is handled. Their first order of business, involving holding to accountability those who previously handled/mis-handled the country's finances, seems to bear this out. The removal of the former Financial Secretary, under whose watch a number of misfeasances occurred, and the replacement with a qualified, and well-groomed, Marlon Johnson, does give me hope that we will see changes.
SP 7 years, 2 months ago
PRIME Minister Sheriff Minnis CARICOM pledge to root out corruption in the Bahamas has taken on a life of its own with Trinidad and Tobago PRIME Minister Dr. Keith Rowley echoing “PNM or not, all persons who engage in corrupt activities anywhere in society must be held accountable".
http://www.newsday.co.tt/news/0,248993.…
The UBP, PLP and former FNM so-called "elites" who are the architects of an apartheid to cement their control over Bahamas economic and social system that systematically destroyed our country and people are scampering to hide any number of skeletons in overflowing closets and graves. These people have a whole lot to answer for!
Thank GOD for PM Sheriff Minnis!
BONEFISH 7 years, 2 months ago
Cat Island Boy, you don't know what you are talking about. There are other persons who should be removed ,who are still in the OPM.
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