The deficit exceeded the budget forecast by $127.6 million at the halfway mark. NASSAU, BAHAMAS – Prime Minister Philip Davis announced a $72.9 million improvement in tax revenue collections during the first six months of the fiscal year, reaching $1.2 billion, which accounted for 40.1 percent of the budget target.

In his mid-year budget statement, Prime Minister Davis highlighted The Bahamas' favorable economic outlook for 2024, especially in the tourism sector. He acknowledged the risks facing the nation, such as potential economic slowdowns in tourism source markets and costly natural disasters. To address these risks and enhance economic resilience, the government is implementing measures, including building fiscal buffers and exploring investments in renewable energy infrastructure.

The Davis administration reduced the VAT rate from 12 percent to 10 percent in January 2022. By the halfway mark, Value-added tax collections amounted to $646.0 million, representing 55.2 percent of tax revenues and a $47.2 million increase compared to the previous year. This growth equated to 40.6 percent of the annual budget target. Six-month VAT collections increased by 18.6 percent or $101.4 million compared to the fiscal year 2021/2022, before the VAT rate reform.

Excise tax revenues improved to $15.4 million during the period, marking a $14.3 million increase over the previous year. Excise tax collections surpassed the budget target by 540.9 percent or $13.0 million at the halfway mark.

With ongoing improvements in the tourism sector, departure tax collections reached $84.8 million, a $13.3 million increase compared to the previous year, accounting for 42.5 percent of the budget target at the halfway mark. Anticipating further revenue growth, especially with the introduction of departure tax adjustments for cruise passengers, the government expects a significant increase in this revenue component for the remainder of the fiscal year.

On the expenditure side, preliminary aggregate expenditure for the first six months of the fiscal year was $1.56 billion, a $24.7 million increase over the previous year, representing 45.2 percent of the annual budget target. Recurrent spending accounted for 46.2 percent of the budget target, totaling $1.43 billion. Recurrent spending increased by $8.5 million year-over-year, primarily due to a rise in employee compensation to $417.6 million, representing 48.8 percent of the budget target. Increased spending in this category is attributed to higher employment costs from planned promotions and other staff and salary adjustments.

Public debt interest payments increased by $20.2 million to $301.1 million, equivalent to 49.1 percent of the budget forecast. Capital expenditure for the first half of the fiscal year totaled $134.1 million, a $16.2 million increase over the same period in the previous year, accounting for 36.8 percent of the annual budget target. The government anticipates increased capital expenditure in the latter half of the year as several important projects are underway.

Prime Minister Davis also noted that the fiscal deficit has increased during the first half of the fiscal year and has exceeded the budget forecast by $127.6 million. At the start of the 2023/2024 fiscal year, the government forecasted a deficit of $131.1 million. Referring to the first half of the year alone, Davis said during his mid-year budget communication in the House of Assembly:

"During the period, the government experienced a net deficit of $258.7 million, which represented a decrease of $19.1 million relative to the previous comparable period. "At the halfway mark in this fiscal year, the deficit exceeded the budget forecast by $127.6 million. However, the primary balance improved from $3 million in the first half of the 2022/23 fiscal year to $42.4 million for the first half of the 2023/24 fiscal year.

"The primary balance is the best measure of fiscal health. Progress back to the forecasted target is expected in the second half of the fiscal year, on the basis of ongoing control of expenditure and continuing efforts to further enhance revenue collections," Davis noted. For the first six months of the year, preliminary total revenue collections are assessed at $1.30 billion, which represents a $43.8 million increase over the same period of the prior year.

Davis said stronger collections are expected in the second half of this fiscal year.

Regarding corporate income tax, which will only affect multinational enterprises earning more than 750 million euros annually, Davis noted that the implementation of Pillar Two in The Bahamas would unlock a new revenue source, with initial estimates exceeding $140 million annually.

Davis stated, "The goal is to have draft legislation available by the end of May 2024, at which time we will present the budget proposals for the upcoming 2024/25 Fiscal Year. We intend to issue the draft for public consultation over the summer months and then finalize the document for submission to Parliament after the summer recess. We are reviewing options that would entail the Pillar Two multinationals accruing those taxes for 2024 in The Bahamas."

He emphasized that while there has been much discussion regarding a corporate income tax for domestic companies above a certain threshold, the government believes that addressing only Pillar 2 multinational enterprises is the appropriate approach. Any consideration of a broader business income tax would only occur if it is a more equitable approach for Bahamian businesses and would involve proper consultation, with ample lead time for Bahamian businesses to prepare adequately.

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