• Fund: Won’t hit revenue target, end deficits without
• Incallfor5%capital gains, dividend, interest levy
• And suggests raising VAT to 15% as alternative
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
THE Government “disagrees” with the IMF’s assertion that it must introduce a personal income tax targeting “the top 10 percent of earners” and other reforms to hit its 25 percent revenue-to-GDP goal.
Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business last night that the Davis administration believes there is sufficient “buoyancy” in the current tax system to achieve its revenue ratio ambitions. This came as the International Monetary Fund (IMF) called for changes that would generate revenue increases equal to 3.7 percent of economic output by 2027-2028.
The Washington D.C-based Fund, in its full Article IV report on The Bahamas that was released on Friday, urged this nation to exploit the G-20/OECD drive for a 15 percent minimum global corporate tax to craft and implement such a tax to suit this nation’s own needs.
And, besides imposing a personal income tax on the highest 10 percent of income earners, the IMF called for such a reform to be accompanied by a 5 percent levy on capital gains, dividends and interest income. It also suggested that the marginal personal income tax rate equal that of the corporate tax to prevent companies avoiding the latter by paying our profits as salaries to shareholders and top executives.
Combined with removing the $60,000 real property tax cap for owner-occupied residences and increasing the rates for “higher value” homes, as well as “eliminating tax expenditures” on gambling which does not attract 10 percent VAT, the Fund suggested this reform package could generate extra government revenue equal to 3.7 percent of GDP - almost $540m based on today’s figures - in four years’ time.
The Davis administration has already set a target for government revenues to equal 25 percent of GDP, or economic output, by the 2025-2026 fiscal year. However, the IMF implied that without the reform package it has outlined, The Bahamas will never achieve that goal as it unveiled projections showing this ratio would remain stubbornly just below 22 percent through 2032-2033.
And, as a result, the IMF also forecasts that the Government will fail to achieve its objective of eliminating the fiscal deficit from 2024- 2025 onwards - a year in which it currently projects a $109.2m Budget surplus. Instead, in the absence of any adjustments, it is predicting that The Bahamas will continue to run deficits - albeit declining slightly every year to less than 1 percent of GDP - through 2032-2033.
The IMF acknowledged that implementing corporate and personal income tax regimes could be a hard sell in The Bahamas, given that there is no history of such taxation and its implementation would require “significant investment” in training personnel as well as technology to administer such systems.
Should this prove “infeasible”, the IMF suggested The Bahamas raise the VAT rate to 15 percent - a 50 percent increase in percentage terms - as an alternative although it admitted such a move would deepen the regressive taxation where lower income persons give proportionally more of their income to taxes than their wealthier counterparts.
“Tax and expenditure reforms would improve the progressivity of the fiscal system and reinforce debt sustainability. The implementation of the OECD global minimum corporate tax increases the urgency of introducing a well-designed corporate income tax and there is scope to increase the progressivity and efficiency of the tax system,” the IMF’s Article IV report said.
Outlining what Bahamian tax reform should look like, it argued: “Introduce a corporate income tax. Replacing the Business Licence fee with a 15 percent tax on corporate profits for large corporations could raise an additional 1.4 per- cent of GDP and would be compatible with the OECD’s global minimum tax rules.
“Designing the prof- its tax as a cash flow tax that allows full expensing of investment, and includes an unlimited carryover of losses, would simplify implementation and prevent disincentivising business investment. A lower tax rate could be provided for SMEs (small and medium-sized businesses) instead of retaining the Business Licence fee for small entities.”
Much, if not all, of this was included for consideration in the Government’s corporate income tax ‘green paper’ that required companies, industries and others to provide feed- back by end-August 2023. It suggested that, in the majority of cases, a corporate income tax would replace the existing Business Licence regime to as to avoid double taxation.
Meanwhile, the IMF’s Article IV report called for corporate income tax to be accompanied by the personal variety but only for senior management executives and those in high-earning positions. “The personal income tax would have high standard deduction so as to impact only the top 10 percent of earners and would be accompanied by a 5 percent tax on capital gains, dividends and interest income,” the IMF said.
“Setting the marginal personal income tax rate equal to that of the corporate income tax rate would help reduce avoidance through the re-characterisation of profits as labour income and would raise around 2 percent of GDP annually.”
Between corporate and personal income tax, the IMF is forecasting that The Bahamas could raise extra revenue equal to a combined 3.4 percent of GDP - equivalent to just over $495m at today’s economic output. This, it predicts, will enable the Government to both beat its 25 percent revenue-to-GDP target and eliminate the fiscal deficit with a sustainable Budget surplus from 2026-2027 onwards.
Mr Wilson, though, last night reaffirmed that the Government is not eyeing the implementation of
personal income tax in any form. And he reiterated its continued belief that expanding economic activity, combined with better administration and compliance/enforcement, will generate ever-increasing revenue yields to make the IMF’s reform package unnecessary.
“That’s their view. That’s not our own view,” the financial secretary added of the IMF. “I think the mid-year Budget will demonstrate that it’s not necessary to get us to the 25 percent revenue-to- GDP ratio. We believe the current tax system has the buoyancy, better compliance to get us to 25 percent or more.
“We’ve been pretty successful so far but there’s more work to be done. We think the current tax system with real property tax, VAT and Business Licence fees, the work we’ve done in those areas, will demonstrate there’s more. They’re [the IMF] saying that but we don’t think so. We disagree. The Government has made it very clear it’s not at this time considering personal income tax.”
Tribune Business sources have recently suggested that the Government may announce plans for the introduction of a 15 per- cent corporate income tax, but only on those entities that meet the qualifying G-20/OECD criteria as part of multinational groups with annual turnovers of 750m euros or more, in the upcoming 2024-2025 Budget that will be unveiled during the last week of May.
Mr Wilson did not con- firm this, but said the Government will likely make a corporate income tax-related announcement in the mid-year Budget due by the end of this month as “we’ll have a much better idea of what shape or form” such a levy may look like then. He added that designing and structuring a corporate income tax system for The Bahamas may now only be 12-18 months away.
“We are progressing quite well, quite well,” he told this newspaper. “During the mid-year Budget we are likely to make an announcement. We still have to do some more work, but we believe that certainly by the mid- year Budget, which is due by the end of February, we’ll have a much better idea of what shape or form this will take.”
Asked how far away corporate income tax implementation may be, Mr Wilson replied: “Any corporate income tax will be building on the Business Licence regime, so it’s not two to three years [away]; it’s maybe 12-18 months. Whatever we do, it has to be done to meet out inter- national obligations.” The Bahamas is among 138 countries already signed on to comply with the G-20/ OECD minimum corporate tax initiative.
“There is scope to increase revenues from other sources should the proposed fiscal measures prove difficult to implement or macroeconomic conditions worsen and widen the fiscal deficit,” the IMF said. “The introduction of corporate and personal income tax regimes would require broad public support as well as a significant investment to build human and technological capacity to administer the taxes.
“In the event that introducing a corporate and personal income tax proves infeasible, the Government could introduce excise taxes on energy to reduce emissions or raise the VAT rate to 15 percent, in line with regional peers.
“However, further increases in indirect taxes would be regressive and would need to be partially compensated with an increase in social transfers for the poor. Should economic activity slow faster than expected, the pro- posed tax reform could prioritise less pro-cyclical measures while the authorities could phase-in or delay the increase in expenditure measures until revenues recover.”
Elsewhere, the IMF suggested its deficit and fiscal forecasts for the current Budget year are “more realistic” than the Government’s even though the latter is sticking to its $131.1m deficit target that is equivalent to 0.9 per- cent of GDP. The Davis administration is ultimately targeting a deficit equal to 2.1 percent by 2026-2027, with measures including “revaluing real estate in the Family Islands for property tax”.
“Assuming more realistic revenue forecasts, the fiscal deficit is likely to be closer to 2.6 percent of GDP in 2023-2024,” the IMF reiterated. Over the medium-term, central government debt would fall to 80 percent of GDP by 2026- 2027 and gross financing needs would remain high at around 20 percent of GDP for the next several years.
“Even though, under this path, debt is judged to be sustainable, a faster reduction in debt would lessen the risk of sovereign stress, lower the interest burden and reduce the current account deficit.” The Government is also aiming to find extra capital spending from repurposing fixed- cost recurrent expenditure equal to 0.5 percent of GDP despite an aging population.
In response, the Government said it plans to “to launch a strategic review of the tax framework in 2024”. The IMF added: “They believe that their deficit target of 0.9 per- cent of GDP for 2023-2024 is attainable with existing taxes, improved compliance in VAT and property taxes.
“New taxes such as the hotel condominium tax and the tourism environmental tax, in addition to the recent changes to existing taxes, including extending the Business Licence fee to exempt companies, higher cap on real property taxes, are also expected to bolster revenues.
“Furthermore, additional streamlining of tax expenditures and impend- ing adjustments to large multinational corporations’ taxation in the context of the OECD Pillar II should generate additional medium-term revenues as a percentage of GDP.”
Comments
bahamianson 10 months, 3 weeks ago
Wait, who governs us ? Do we make decisions and govern ourselves, or does the IMF own The Bahamas and govetns us? I need to know. I thought the Prime Minister and his cabinet made the laws and the decisions. That is our democracy. Does the IMF rule the world, now. Is it a one world Government, now? Please tell us.
ExposedU2C 10 months, 3 weeks ago
Where have you been???!!! Governing our country was long ago outsourced by the political ruling class to external agencies of one kind or another that exclusively represent their foreign constituents. Didn't you get your share of the very generous payments received by the political ruling class for "selling us out"?
ScubaSteve 10 months, 3 weeks ago
It isn't a "requirement." It's more of a "suggestion" or recommendation. The IMF does this type of analysis on most countries and it serves as an outside source of information and guidance. Rather than relying on internal fiscal studies, which could very easily be "biased" for political reasons based on which administration is in charge of the country at the time.
sheeprunner12 10 months, 3 weeks ago
Which category/social class of Bahamians fall into this Ten Percent????????
What salary/income bracket of citizens fall into this Ten Percent????????
Are those citizens who govern us or own the mega-businesses fall into that Ten Percent???????
Then there will be NO income tax on that Ten Percent.
The Ten Percent will only continue to make laws to extract the max tax from the bottom Sixty Percent and the Permanent Residents
rosiepi 10 months, 3 weeks ago
Hmm, which should one believe? The Davis gov’t that hasn’t fulfilled any campaign promises, play their usual game of moving goal posts, camouflaging and fluctuating $$ numbers til one’s head aches??
Or the IMF who’ve tracked the various Bahamian governments and sorry $$ predictions? There’s considerable amount of money between Davis & Co’s prediction of 0.9% of the GDP and the IMF’s 2.6%, when has this crew ever given out accurate info on anything??
ExposedU2C 10 months, 3 weeks ago
Sebas Bastian and Franky Wilson have graciously agreed to pay all of the taxes the IMF would like to see paid by the top 10% of the earners in our country. And the Symonette Family, not to be out done, have generously agreed to pay on top of that a special one-off wealth tax equal to one-third of their total global wealth.
Meanwhile, Vomit Christie, Bag Man Bethel, and Allyson Maynard-gibson a/k/a The Wicked Witch of The West are all in Hong Kong trying to hide their wealth from the IMF. LOL
moncurcool 10 months, 3 weeks ago
Rather than make the 10% pay their share, instead, the plan of the self proclaimed New Day government is to tax the middle class into oblivion .
Porcupine 10 months, 3 weeks ago
Is it not clear who Mr. Wilson wqrks for? is it not clear who owns this country? Is it not clear that there is no transparency, justice, morality, fairness or honesty present among ANY of our leaders?
Porcupine 10 months, 3 weeks ago
Tribune headline reads, "Gov’t ‘disagrees’ on IMF’s ‘top 10%’ income taxation" Perhaps the government should do a referendum to see what Bahamian citizens think. I suspect that in a functioning democracy a referendum would be appropriate. Greed has overcome our minds and thoroughly taken over our politics. A sad state for a country that calls itself Christian. Are there any Christians in government in this country? Seriously.
Dawes 10 months, 3 weeks ago
Can we not get any figures as to how many people this top 10% is. How much they think the tax rate should be? and finally how much said tax rate would bring in. I assume it will be if your income goes over a figure (say $50,000) then you pay 15% tax on the amount above. This would be OK to many, as long as the level of service improves dramatically. if you are just taxing people the 15% and then the roads are terrible, the hospitals non existent, schools not educating and crime rampant, i feel many in the tax bracket may say no point. The high tax level countries in the Nordic nations work because people can see the benefits.
sheeprunner12 10 months, 3 weeks ago
Those Nordic countries pay up to 50% of their income on taxes ........ But their Governments (services) are functioning for The People.
We, Bahamians (in the bottom 60%) pay probably 20% of our annual salary in taxes, but get almost NOTHING of value for it. Our Government services (roads, schools, clinics, transport/telecoms, power, water etc) are mediocre - at best.
You get what you pay for ............ in 242 case you dont even get that.
That is the difference between the Nordic ppl and the Bahamians.
ohdrap4 10 months, 3 weeks ago
The Christie Govt wanted a payroll tax, to be collected by.
NIB. In other words, the tax to be collected by the bottom earners, with a cap.lok.
hrysippus 10 months, 3 weeks ago
Imposing income tax on the income of the wealthy is OK, although most of the wealthy will probably find ways to "protect" their wealth. This country has a long history of "protecting" the wealth of citizens of other countries, minimizing the taxes that they pay to the governments of their home countries. Inheritance tax, or Death Duties, would be a better alternative. In the UK the estate of the deceased pays 30 to 40% in taxes to the government. Inherited wealth is the enemy of social equality. Generational wealth passed down through families keep the members of those families as wealthy elites, we can see this in some of the Bahamian families descended from slave owners. If you want the names, do your research. Inheritance tax is also harder for tax cheaters to evade paying, to pass on your wealth it must be declared before probate is issued.
ExposedU2C 10 months, 2 weeks ago
Additional taxes in our country are only ever used for two things: (i) Feathering the nests of corrupt government officials and their cronies, both foreign and local, and (ii) growing the size of our most bloated and non-productive government.
Sign in to comment
OpenID