The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian economist yesterday said there was "no escaping" new and/or increased taxes to pay for COVID-19's debt blow-out as the IMF again pushed an income tax solution.

Rupert Pinder, who lectures at the University of The Bahamas (UoB), told Tribune Business that while he backed the Fund's rationale for such a levy any reform had to be "comprehensive and not done in a piecemeal fashion".

He spoke out after the IMF, in its statement on the Article IV consultation with the Government and elements of the private sector, reiterated previous arguments that some form of income taxation would be fairer and more equitable than the present consumption-based regressive system that The Bahamas enjoys now.

"Income taxation can help achieve a more equitable income distribution," the Fund said, barely disguising its desire to prod The Bahamas in this direction. "Tax policy and administration measures are essential to a robust consolidation.

"In tax administration, the review and modernisation of the Department of Inland Revenue’s organisational structure should be prioritized. For Customs, priorities include establishing an effective exemption monitoring and verification unit, strengthening risk management, and developing post-audit clearance capacity."

Mr Pinder, in response, said it was hard to see any alternative to new and/or increased taxation to help pay for the extra debt taken on by the Government to pay for COVID-19 and the Hurricane Dorian recovery once the economy stabilised and then pandemic passed.

"My argument is that's coming. There's no escaping it," he told Tribune Business. "But what needs to happen is is we need to have a very comprehensive look at taxation, and not do it in a piecemeal fashion. It's got to be a comprehensive review.

"When you look at taxation issues, one of the arguments is that with tax revenues as a percentage of GDP traditionally at 18 percent, we have good head room in terms of increasing the level of taxation. I've heard people in the Ministry of Finance use that argument.

"The danger of that is it's one thing to look at the numbers in relation to GDP, but to focus on consumption taxes which affect people at the lower end of the spectrum disproportionately rather than direct taxation, which has more bearing on income levels than consumption......"

Mr Pinder acknowledged that consumption-based taxes, such as VAT and import tariffs, were easier to collect especially since The Bahamas has no history of income or corporate income taxation.

While this nation has to-date shied away from such taxes, due to concerns over whether it has a sufficient income tax base, and the difficulty and costs associated with collecting it, he added that he did not necessarily "buy that" given that Barbados has both income and consumption taxes.

Income tax, whether personal, corporate or both, has long been viewed as a reform option for The Bahamas by elements both inside and outside the country. The current regressive consumption-based tax system is seen as unfair because poorer Bahamians end up spending a disproportionately higher amount of their income in taxes compared to higher earners.

Under direct taxation, such as an income tax, the amount of tax paid is linked to the person's ability to pay, which makes for a fairer, more progressive system. Similar sentiments were recently voiced by the Government-appointed Economic Recovery Committee, which said in its executive summary: "The Bahamas’ historically regressive tax regime is viewed largely as both inequitable and unsustainable.

"Tax contributions are disproportionately higher for lower income citizens/businesses largely because of the regressive nature of the country’s tax regime. Beyond this, the sustainability of the current regime in light of population growth, the rising cost of living and other factors remains an impediment to its growth and development prospects."

Marlon Johnson, the Ministry of Finance's acting financial secretary who also co-chaired that committee, yesterday said the Government would take the IMF's plugging of income tax "under advisement".

He added that whatever tax reform options were assessed, they "need a deep study so that the appropriate regime is based on empirical data and matches where the country is presently".

Elsewhere, the IMF also reflected the committee's report by suggesting that The Bahamas increase the real property tax rate for "higher value residences", although it did not define this market segment. The committee had recommended increasing the $60,000 real property tax 'cap' or ceiling, and for real property tax to be levied on "high end" Bahamian-owned properties in the Family Islands.

The IMF, meanwhile, added that "establishing an asset registry and real estate price index would reduce information asymmetries and support monetary policy transmission". It said: "The Bahamas faces long-standing structural impediments, and COVID-19 brought them to the fore.

"Reform priorities, many of which are listed in the recent report by the Economic Recovery Committee, include modernising administrative services and rationalising regulatory requirements for starting a business; enhancing the operational efficiencies of utility state-owned enterprises; and reducing frictions in the job matching process.

"The prospect of more frequent natural disasters makes it paramount to further enhance resilience. The disaster relief fund, which was exhausted following Hurricane Dorian, should be gradually rebuilt. A proactive data exchange among relevant agencies can increase agility of social programmes, while better targeting could broaden the reach of services.

"A mandatory insurance for all private properties, not just for those financed by mortgages, can help increase private sector resilience. To ease the socioeconomic burden, a means-tested subsidy for insurance premiums could be considered."