September 04, 2012
A key advisor to the Christie administration says income tax must be considered in The Bahamas to curb its rising debt levels. James Smith, a former state minister of finance, told Guardian Business that the government should look at all options. The chairman of CFAL added that he is a strong proponent of value-added tax (VAT), although he is open to any system that corrects the course of the economy. "This no tax issue is simply not the same discussion anymore," he explained.
"Five years ago, income would have been off the table. But I suspect it will come up. The time has come to look at all options, to the extent The Bahamas has stopped promoting itself as a tax-free jurisdiction. I think we can begin to move away from that model." The top business leader will be a mediator for at least one panel discussion at the upcoming National Symposium on Tax Reform, held at The College of The Bahamas from October 25 to October 26.
The two-day, televised event is chaired by Prime Minister Perry Christie, with Governor General Sir Arthur Foulkes agreeing to serve as patron. While adding to the national dialogue on this fundamental issue, the symposium plans to submit a paper for consideration to government on the way forward for tax reform. For his part, Smith told Guardian Business the landmark event is simply a natural economic progression. Tax Information Exchange Agreements (TIEA) and compliance with the Foreign Account Tax Compliance Act (FATCA) have been well documented over the years.
"Something has to be done to reform dramatically the tax structure. The existing structure cannot service the growing economy. We'll end up with increasing deficits, to the point where the debt to GDP ratio would be hard to finance locally and broad. Questions will be raised on our ability to service our own debt," according to Smith. Although the debt-to-GDP ratio is estimated at 54 percent, the CFAL chairman pegged it at 65 percent including contingent liabilities, such as the Bahamas Development Bank and Water and Sewerage Corporation.
Dionisio D'Aguilar, the president of Superwash and chairman of AML Foods, highlighted the country's persistently narrow tax base as the key problem. He felt reform must target those professions that have historically paid very little tax, such as lawyers and accountants. "They contribute a very small amount of their income to the treasury, whereas a good store contributes an enormous amount," the retailer said.
Declaring himself "pro VAT", the top businessman also said the government must become more organized and aggressive in how it collects existing taxes. More specific penalties must come into play for individuals that fail to pay their share. The government could also do more to impose insurmountable hurdles for business entities that fail to comply in time.
Smith pointed out, in the next several weeks, the prime minister intends on presenting government with the much-anticipated "white paper" on tax reform. The tax symposium next month will surely go a long way in paving the way for this historical document. "The symposium is very timely, with the white paper expected sometime before Christmas," he added.
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