TAX NEWS - JUNE 2010

Bahamas Tax: PM buys into sales tax

Call it sales tax or VAT (Value-Added Tax) but the Prime Minister Hubert Ingraham has said The Bahamas needs a new taxation model as it cannot to continue to survive on customs duty alone.

Many voices in industry have spoken in the wake of the PM's austerity budget of the constraints put on the nation by having such a narrow tax base, saying it limits The Bahamas' ability to react in a crisis.

Speaking to The Nassau Guardian Ingraham said while the immediate issue was to get through the current situation and reduce the nation's debt and rein in public spending the nation could not avoid the question of taxation forever.

He said: "Some time in its future The Bahamas has to consider the question of its taxation model. It is not possible for The Bahamas to indefinitely rely so heavily on customs duty as a source of revenue.

"It is not possible to not, at some point in the future, tax services rendered in The Bahamas and whether that's going to be VAT (Value-Added Tax) or sales tax or by whatever name it would be called.

"It needs to happen at some point in time in the future.

"At the moment we are trying to get [out of] the hole we are in. We have proposed our medicine for the patient, we are not seeking to do anything except to restore the patient; the patient has to live.

"The political parties of The Bahamas I think at the next election has to spell out what they are proposing.

"The reality is something has to be done."

A move to VAT would see retailers avoid having to pay their tax to the government up front, easing cash flow and lowering the business costs, instead adding the tax to the price tag paid by consumers.That price tag of goods for shoppers should in theory though be lower, reflecting the lower cost to retailers of sourcing their goods.

However, such a move would need considerable public education and a huge restructure to ensure that revenue were collected and that retailers implemented the system.

Asked if he would consider a referendum on the subject of sales tax, the prime minister said: "In terms of taxation I wouldn't put that to the public. I think the government of the day will have to make that decision and move on."

His comments will be listened to intently in industry as many has also stated the tax system has to change.

Khaalis Rolle, president of the Bahamas Chamber of Commerce said: "The fact is that successive governments have failed put in the forward planning and restructuring we need.

"We can't go on with such a narrow tax base. This leaves no room for creativity. It is wrong to blame this on the global recession, all that has done is unmask our previous sins, we were unprepared.

"We have known for a long time we needed reform but that has always been mired in politics, we need to do what is right for the nation."