The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-Attorney General yesterday said that while the Bahamas’ tax system “needs to be fixed”, that cannot be achieved through “boiler plate recommendations” such as the IMF’s.

John Delaney, now senior partner at Delaney Partners, told Tribune Business that “comprehensive” analysis was required to deal with the “bugs and quirks” that persist within the tax system.

Questioning how the International Monetary Fund (IMF) had arrived at its recent ‘low-rate income tax’ proposal, Mr Delaney said there was nothing to suggest it had considered “all the factors” and impacts such a reform was likely to have.

Pointing out that many Bahamian businesses and individuals were still adjusting to Value-Added Tax (VAT), the former attorney general suggested that introducing a new tax now would only “over burden” this nation and add to the taxation system’s complexity.

He added that tax reform should not focus just on increased government revenues, but needed to benefit the Bahamian people through fostering increased GDP growth and employment.

As a result, Mr Delaney said any proposals needed to be assessed in the context of the Government’s wider social and economic policy objectives.

“It’s problematic to introduce revenue raising measures that are inconsistent with, or impede, other important business activities going on in our country,” Mr Delaney told Tribune Business of tax reform.

“It has to be aligned with whatever else is happening in your economy. You cannot simply look at revenue raising without having regard for economic activities in the country, and ensuring it’s aligned and does not hamper it. Hopefully, it fosters it as well as raising revenue.”

The IMF, in its recent Article IV consultation with the Bahamas, proposed a ‘low-rate income tax’ as a means of revenue replacement for the income the Government will lose as a result of reducing, or eliminating, import tariffs to comply with its global trade agreement commitments.

The Fund also argued that its introduction “over the medium-term would help make the system more progressive, and protect the needed infrastructure and social spending”.

Mr Delaney, while acknowledging that the Bahamian tax system needed to become more progressive and equitable, said there were numerous ways of achieving this besides income tax.

He questioned how the IMF had arrived at its recommendation, and why it was included in the Article IV statement, given that there appeared to be no empirical data or studies to justify the proposal.

“There’s nothing to evidence they’ve considered all the facts,” the former attorney general said of the IMF. “It’s almost like a boiler plate recommendation.

“There’s no question about it that the objective should be to move towards a progressive system of taxation, but there’s other ways of achieving it. I wonder how they came up with the recommendation of income tax.

“The Bahamas needs to do what is right for the Bahamian people, and Bahamian economy, in a way that fosters economic growth and the well-being of our people. At the end of the day, it’s incumbent upon us to analyse this carefully with the best minds, and whatever assistance is necessary.”

Mr Delaney said no comprehensive analysis of the Bahamian taxation system had been conducted “for decades”, and he queried whether such a review was performed by the last Christie administration prior to its introduction of 7.5 per cent VAT.

Pointing out that income tax usually co-existed alongside other revenue measures, he asked: “Is the IMF contending for income tax in addition to existing taxes?

“Bahamians have yet to adjust to the burden of the new VAT. Simply adding on another tax is unhelpful to the growth of our economy, and will definitely over-burden Bahamians and our businesses. VAT does that, too.”

However, Mr Delaney emphasised that tax reform was essential if the Bahamas was to eliminate all “the bugs and quirks” in the existing system that resulted in inequity, and unfairly burdened the private sector and low income Bahamians.

“I do believe tax reform needs to be considered,” he told Tribune Business, “because there are many areas of our existing regime where there are numerous quirks that get in the way of growth and the ease of doing business, and which are placing burdens on vulnerable people.”

Mr Delaney said the Bahamas’ existing focus on consumer taxes, such as VAT and import duties, placed a disproportionate burden on lower income persons, while the Business License fee’s imposition on turnover effectively taxed numerous businesses into a loss.

“I’m not suggesting what we have now works, is the best or doesn’t have bugs in it,” he added. “Even if the amount of taxation today is sufficient to run the Government, there are a number of quirks and bugs in it. How can you tax turnover if a business is not making a profit? That’s unhelpful to business

“For sure, there are many issues with the current model which need to be fixed. Amongst the issues needing to be fixed are the overburdening of vulnerable households, the anti-business nature of the Business License regime, and many quirks of the VAT regime which impede ease of doing business.”

Mr Delaney said the Bahamas needed to “adapt” VAT to its specific needs, much as it had done with Stamp Duty decades ago, although he acknowledged the need to be careful about granting ‘exemptions’.

“It doesn’t mean what we have now can’t be improved,” he told Tribune Business. “The tax reform discussion needs to happen. What is needed is a comprehensive review of our tax system. Both the raising and spending of taxes need to be fixed.

“There is a need for fiscal accountability as well as the divestment or privatisation of inefficient government-managed enterprises. It is no sustainable solution to governmental inefficiency to continue to extract more taxes from the public.”