The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ tariff structure is the reverse of the conventional model applied by most countries to protect domestic producers from foreign competition, the draft National Trade Policy argues.

The document, which has been released for industry and public consultation, says that - while most countries apply their highest tariffs to goods bought by the final consumer - The Bahamas has its lowest average duty rates in this area.

And, while other nations save their lowest tariff rates for raw materials used by their domestic producers, The Bahamas has its highest rates on these and other intermediate input goods. With a tariff policy that is effectively ‘back to front’, the National Trade Policy says The Bahamas has sought to protect its domestic industries via tax breaks and concessions on raw materials that can be accessed via various incentives laws.

“In most countries, this problem of effective protection has been addressed by escalating tariff structures, where tariffs on raw materials are lowest, intermediary goods slightly higher, and final products highest,” the report said. “For The Bahamas, no such tariff structure is evident.

“Consumption goods actually enjoy lower tariffs than goods needed by the domestic industries. Rather, the primary instrument for providing effective protection has been through duty exemptions on inputs used by Bahamian businesses through various incentive Acts.

“Under these, while statutory tariffs might be high, registered businesses are typically eligible to not pay duties on their inputs. This system, however, may have some disadvantages such as limited transparency, inequality of access, and opportunities for arbitrage.”

The National Trade Policy showed that The Bahamas’ “simple average tariff” on goods sold to the end-consumer had altered little between 2018 and 2021, standing at 18.1 percent in the former year and 17.2 percent in the latter. However, both rates were considerably lower - almost 50 percent less in percentage terms - when compared to what The Bahamas levies on capital, intermediate and raw material goods.

The simple average tariff for raw material imports stood at 32.2 percent in 2021, while those for intermediate and capital goods were 35.3 percent and 33.7 percent, respectively. Some of these products are required by Bahamian industries and producers in their production processes, hence the need for duty relief and tax breaks.

“A gradual reduction of The Bahamas’ statutory tariffs has taken place over time, especially since 2015 after the introduction of VAT,” the National Trade Policy said. “Since 2018, import tariffs were reduced for a number of products, including for environmentally-friendly goods, medical goods needed in relation with the COVID-19 pandemic, certain household appliances and consumer goods, and certain equipment and inputs used by domestic industries.

“At the same time, some tariffs for goods produced domestically remain high and protect domestic manufacturers, which enjoy tariff protection of up to 100 percent. In principle, as long as The Bahamas is not a World Trade Organisation (WTO) member, tariffs can be set unilaterally through changes in the Tariff Act at any level.

“Although current tariffs are aimed at protecting domestic businesses against imports that can be produced and exported to The Bahamas at much lower costs, one has to acknowledge that high tariffs do not necessarily grant effective protection,” the report added.

“This is especially the case where businesses have to pay high duties on imported inputs, and in The Bahamas the vast majority of inputs across sectors are imported, or drives up costs otherwise. In such a situation high tariffs provide no effective protection to import-competing businesses, and also reduce the competitiveness of businesses primarily aimed at exports.”

The National Trade Policy said tariffs were inextricably linked to the Government’s tax revenues given the Public Treasury’s still-high reliance on them. “WTO accession would also require certain changes in the country’s tariff policies. These include, first, a reduction on overall average tariffs, although certain tariff peaks could be maintained,” it explained.

“Considering the still high dependence of government revenues on import duties, this might cause problems for public finances. Second, some WTO members have claimed that some of the current tariff and tax provisions (such as maximum variable duties, MVDs, or excise taxes imposed only on imports) are not in line with WTO rules.”

The National Trade Policy called for a review of existing tariffs “with the aim of strengthening effective protection. In doing this review and the potential restructuring of tariffs, care will be taken that potential unintended implications are considered”.