During the 2005/2006 Budget Communication in The House of Assembly on Wednesday, it was disclosed that the Government had no intention of introducing a Value Added Tax (VAT) as an alternative source of revenue for The Bahamas in the immediate future.
Deputy Prime Minister and Acting Prime Minister, Cynthia Pratt, who delivered the budget said Wednesday in the House that it was crucial for The Bahamas to achieve a ratio of Government revenue to GDP of about 20 per cent in order to avoid implementing radical revenue reforms, such as the VAT. Despite improvements in revenue administration, she disclosed that achieving this 20 per cent Revenue to Government ratio was “difficult.”
Mrs Pratt said the difficulty stemmed from the fact that The Bahamas had a narrow revenue base, and one depending heavily on Customs duties, without the benefit of taxation. According to her, “The ratio of Revenue to GDP of 20 per cent is becoming increasingly hard to achieve because of the narrowness of our revenue system, heavily dependent as it is on Customs revenues and the non-taxation of services.” Additionally, the increase in spending to expand public services, despite the current situation, has resulted in increased fiscal deficits that have had to be settled through borrowing.
She said the inability to achieve the desired 20 per cent ratio of Revenue to GDP was a major domestic factor that could force The Bahamas to reconsider its current revenue system. Based on the current situation, she said the conclusive suggestion was that changes would have to be made to The Bahamas’ revenue system within five to 10 years. “At some point in the medium-term, firm consideration will have to be given to how best to reform our present system,” she said.
Despite this outlook, the government is reportedly continuing to seek ways to better manage the revenue available to it. “Nevertheless, we are continuing to move to enhance the administration of our existing revenues until this process is exhausted,” Mrs Pratt reported.
She also said international forces would put pressure on The Bahamas to restructure its current revenue based system. One such international body that could influence The Bahamas in this way is The World Trade Organization (WTO). Said Mrs Pratt of the trade body, “Within the context of the World Trade Organization, there will be pressure on The Bahamas to reduce and simplify its Customs Duties.
“The reduction in Customs Duties would mean finding a satisfactory replacement to yield the same level of revenues.”
Although The Bahamas could be faced with finding a suitable alternative, what Mrs Pratt assured of was the fact that a VAT would not be introduced, at least not in the short run. “This Government has no intention of introducing such a tax now or in the near future,” she said.
She reasoned that it was impossible for any government considering introducing a VAT to do so on short notice, notwithstanding the legislative process to legalise it. She said, “VAT is a complex measure requiring careful planning and preparation, extending over several years, and would involve considerable consultation with those likely to be affected such as business and ordinary Bahamians.”
Mrs Pratt disclosed that in the meantime, the Ministry of Finance is continuing to commission reports on operational aspects of a VAT for future consideration at such time when it would be an absolutely necessary and desirable undertaking in The Bahamas.
By Barry Williams, Nassau Guardian Staff Reporter
