Income Tax Jitters in The Bahamas Following IMF Recommendation

NASSAU, The Bahamas, Friday September 22, 2017 – An International Monetary Fund (IMF) proposal for The Bahamas to implement a low rate income tax has drawn a mixture of skepticism, approval and downright rejection.

Following its Article IV consultation with the Hubert Minnis administration, the Washington-based financial body urged the Government to implement a “low rate income tax” to improve taxation system fairness and replace revenue lost, as customs tariffs are slashed as a result of the Bahamas’ international trade commitments to the European Union (EU) and, possibly, the World Trade Organization (WTO).

It argued that the move would also “make the tax system more progressive and help protect infrastructure and social spending”.

However, former Finance Minister James Smith has urged the Government to tread cautiously, warning there must be full analysis of the proposal.

Smith told the Tribune newspaper that the Bahamas is a country “built on tax evasion” and citizens were not likely to buy in with enthusiasm.

“It’s an interesting discussion to have, but the Bahamas – given its historical status on taxation – needs to be very careful on the way forward.”

“There are a lot of issues involved in this, not the least of which is the administrative machinery. The net effect ought to be positive once you’ve taken a decision. You don’t want to introduce a new tax because it’s fashionable,” he said.

Smith got strong support from Managing Partner of Deloitte & Touche (Bahamas), Raymond Winder, who said the country must have a clear understanding of how it would impact the overall economy.

“We need to use taxation as a means of collecting revenue, but also as a means of incentivizing the development of industries and certain transactions for the economy. It’s also difficult to take into consideration one aspect of taxation without considering all the taxes the Bahamas currently uses.

“Before we move in that direction [income tax], studies need to be done; not only to seek additional revenue, but spur momentum in certain industries. The Government ought to be wise and take a look at every tax being utilized in the Bahamas before we move in any one direction,” Winder warned.

However, if financial services entrepreneur Paul Moss had his way, the Bahamas government would introduce the tax.

He described the IMF proposal as “spot on”, arguing that the country’s “no tax” platform is not working for the Bahamas which projects itself as a leading financial services jurisdiction.

Insisting tax competition was the way of the future, he suggested that Bahamas was at risk of losing business to jurisdictions such as the Cayman Islands, Bermuda and others.

Key local business players have however rejected the recommendation.

Robert Myers, a principal with the Organization for Responsible Governance (ORG), blasted the idea of new and/or increased taxes as “short-sighted and irresponsible” given the Bahamas’ present economic and fiscal condition.

“Adding any further taxes ahead of the Government’s [planned fiscal] reform is unacceptable, and the suggestion of it is downright irresponsible.

“In effect, what the IMF suggests by this is that if the Government taxes its citizens more the IMF will lend it more money. The Government does not need more money; it needs to learn how to live within its means, like the rest of us.”

At the same time, President of the Chamber of Commerce and Employers’ Confederation, Michael Maura charged that the introduction of an income tax would be disastrous.

“To introduce a new tax at a time when the cost of living is unbearable, at a time when a small business can hardly keep its doors open, would be destructive.”