Thursday, February 14, 2013
Thursday, February 14, 2013
The government tabled in the House of Assembly February 13 its White Paper on Tax Reform.
According to the Perry Christie administration, the overarching objectives of the document is threefold: to secure an adequate revenue base in support of modern governance; to establish a tax structure that promotes economic efficiency and stronger economic growth; and to make the tax system more equitable.
Within the proposed package of tax reforms, it is recommended that VAT be introduced, as of July 1, 2014, at a rate of 15 per cent, consistent with VAT rates charged elsewhere.
“Such a VAT rate, in combination with the other reform proposals, would ensure that government will have access to adequate revenues streams for the future,” explained Minister of State for Finance Michael Halkitis, while speaking at a luncheon meeting of the Bahamas Chamber of Commerce and Employers Confederation.
As The Bahamas negotiates membership of the World Trade Organization (WTO), it is going to have to reduce existing duties attached to goods imported into the country, the Minister said.
According to Halkitis, the final determination of those import tariff reductions will be subject to the ongoing WTO accession negotiations.
However, the excise taxes that are currently imposed on selected products, namely tobacco, petroleum, vehicles and certain luxury items will be unaffected by WTO accession as, by law, they are imposed at the same rate on both domestic production and imports of those products.
In the case of tobacco, the government has tabled legislation for the introduction of new excise stamps for all tobacco products.
Government investigations have found that the public purse is losing considerable tax revenues every year through the illegal importation of tobacco products and that excise stamps could assist in securing up to $20 million of those leakages, according to Halkitis.
The government also proposes eliminating the hotel occupancy tax and to subject hotel accommodations to VAT, rather than both taxes.
“This will allow hotels to claim VAT input credits on their purchases of materials and supplies and will be consistent with the current Hotels Encouragement [Act] regime,” Halkitis said. “Hotels will benefit from lower compliance costs and the government will benefit from administrative economies of scale.”
It is proposed that hotels be subject to a VAT rate equal to the current hotel occupancy tax rate of 10 per cent. Likewise, it is proposed that food and beverage sales in hotels be subject to VAT at the same rate of 10 per cent.
“Given the relatively high rates of excise tax imposed on a number of excisable items, it is proposed that all excise tax rates be reduced by an amount just sufficient to counteract the imposition of a 15 per cent VAT on those products,” said Halkitis. “As a result, the total tax payable on excisable products would remain unchanged.”
The government believes that its programme of tax reform when fully implemented will result in “considerably” greater and more efficient revenue collection, said Halkitis.
More importantly, the government says tax reform will bring into being a new system of taxation that shares the tax burden more fairly and equitably.