- The Government of The Bahamas is planning tax reforms that will hit the cruise lines’ Bahamian private islands and end their nine-year value-add tax (VAT) free status, it was confirmed this week.
- Simon Wilson, the Ministry of Finance’s financial secretary, confirmed the authenticity of a Department of Inland Revenue “guidance document” obtained by the newspaper, which reveals that, within weeks, the tax authorities plan to change the tax treatment of goods and services supplied to millions of tourists who visit these locations annually by levying VAT on all such transactions at the standard 10.0% rate.
- Notably, the Government “disagrees” with the International Monetary Fund’s (IMF) assertion that it must introduce a personal income tax targeting “the top 10.0% of earners” and other reforms to hit its 25% revenue-to-GDP goal, according to Wilson. He further noted that there is sufficient “buoyancy” in the current tax system to achieve its revenue ratio ambitions. This came as the IMF called for changes that would generate revenue increases equal to 3.7% of economic output by 2027-2028.
- That said, 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.
- The Davis administration has already set a target for government revenues to equal 25.0% of GDP, or economic output, by the 2025-2026 fiscal year. However, the IMF implied that without the outlined reform package, The Bahamas will never achieve that goal as it unveiled projections showing this ratio would remain stubbornly just below 22.0% through 2032-2033.
- This new VAT and talks around a corporate income tax might be a step in the right direction for The Bahamas, whose revenues have been highly reliant on tourism activity historically. This makes its economic activity and fiscal position very vulnerable to activities that adversely impact the industry, including climate related and other economic shocks. However, the fulfilment of these tax restructurings and their effects are left to be seen.
(Sources: The Tribune & NCBCM Research)