Fitzgerald predicts Bahamas will eventually have income tax

The Nassau Guardian

Fitzgerald predicts Bahamas will eventually have income tax

Education minister Jerome Fitzgerald has predicted the country will eventually have to implement income tax after it reduces customs tariffs.

“What I will say, Mr. Speaker, is that as we move closer towards [the] WTO (World Trade Organization), there is no doubt that further considerations will have to be given to our tax structure,” said Fitzgerald during debate on the budget in the House of Assembly on Thursday.

“And I have no doubt that someday, yes, we will have income tax. It’s hard to imagine but…once we start eliminating that form of taxation, customs duties, we’re going to have to find income from somewhere. So, it may not be while we’re here, but the time will come.

“I don’t see how we can avoid it based on the level of debt we have and our debt service.”

Government debt at the end of 2013/2014 is projected at $5.1 billion, or 60 percent of GDP.

The government is spending around $260 million in servicing the debt every year.

The government would be mandated to immediately lower its tariff rates upon joining the WTO, government officials have said.

The Bahamas was previously committed to a December 2014 deadline to join the WTO.

However, Minister of Financial Services and Trade Ryan Pinder said recently the process would likely extend into mid-2015.

It is not clear to what level tariffs will ultimately need to be reduced once WTO membership has been achieved.

Prime Minister Perry Christie said last month the government wouldn’t consider any wide scale customs reductions until 2015.

“Based on the revenue performance of VAT (value-added tax) early next year, the government may be in a position to consider tariff and excise reductions at the time of the 2015/2016 budget,” he said. “More general tariff rebalancing, however, is still a requirement that will need to be implemented once The Bahamas concludes the ongoing WTO negotiations.”

Negotiations are currently underway involving other WTO member countries and The Bahamas on the topic of duty reductions, officials have said.

It is estimated that the government derives as much as 60 percent of the revenue from customs duties.

The Bahamas at present has some of the highest customs duties in the world, and will require an overall reduction in the average tariff in order to be WTO-compliant.

VAT will be introduced on January 1, 2015.

It is expected to generate $150 million within the first six months.

In its white paper on tax reform, the government notes that income taxes are in general application around the world, and they do generate significant sums of money for governments.

However, the paper notes that the yield from income taxes is subject to the usual impacts of the economic cycle on employment and profits.

It says the principal drawback of personal income tax is that it acts as a disincentive to work effort and entrepreneurship.

It also discourages saving as interest income, dividends and capital gains are subject to tax.

Likewise, the corporate income tax on profits discourage investment and innovation, the white paper adds.

 

 

 

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