The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

Minister for Economic Affairs Michael Halkitis said there will be no new taxes in the upcoming budget as it would be “counterproductive” to economic recovery.

Mr Halkitis told reporters ahead of the weekly cabinet meeting that despite the latest International Monetary Fund’s Article IV Consultation report advocating for more taxes, he said calls for such increase in taxes would not be in the cards due to the ongoing economic recovery from the COVID-19 economic fallout.

Mr Halkitis said: “We are always very grateful for them. They come once a year and do a deep dive analysis of the economy. They speak with us and they speak with the private sector and they come up with a list of recommendations, which we study.

“In the latest report and which has been a theme of their reports, they always are more conservative as to how much money you can actually get from improved administration.

“We think that we can get a substantial amount of funds by improving our collection, they tend to think that there’s a limit to that and you need to put in new taxes. Our view is coming out of the pandemic, putting in new taxes would be counterproductive, because we’re trying to grow the economy into recovery.

The IMF said: “A meaningful tax reform should go hand-in-hand with efforts to strengthen tax administration. Tax policy reforms should address shortcomings of the current system, including high income inequality and a heavy reliance on distortionary taxes.”

The fund also advocated for a gradual increase of the VAT rate to the regional average of 15 percent which would raise around 2.7 percent of GDP; building comprehensive real estate price indices on all islands that would provide a basis for a market-value-based property tax and the current system adding that such a plan could be made progressive by increasing the rate on higher value residences.

The IMF also called for a progressive tax on employment income applied to the top 10 percent of earners at a 10 - 15 percent rate, saying that this coupled with a flat 5 percent withholding tax on capital income, would raise around 2 percent of GDP. Also implement a corporate income tax of 15 percent.

Mr Halkitis said: “Our view is that we focus on growing the economy, attracting investment, doing a better job of tax administration and you’ve seen some steps towards that in terms of the new revenue enhancement unit, by attracting investment and growing the economy, we increase employment, which increases revenue in the economy.

“So we study what they say and they tend to be more aggressive in my opinion in terms of putting in tax measures. But the Prime Minister has said that would be an absolute last resort. We’re still in recovery mode from COVID and so our view is it’s better to keep the taxes as they are, improve the administration and focus on growing the economy.”

As for the implementation of the 15 percent global corporate tax, Mr Halkitis said any implementation of such a tax would be a “major departure” from what historically has been done in The Bahamas and would have to be done after long periods of consultations with the stakeholders, bearing in mind that the threshold is for companies with $750m in turnover.