Tax burden reduced in Bahamas budget

Parliamentarians, lead by Prime Minister and Minister of Finance Hubert Ingraham, walk across Parliament Square to the House of Assembly where Ingraham delivered the 2009/2010 Budget Communication. (BIS Photo/Patrick Hanna)

NASSAU, Bahamas, May 28, 2009 – No new taxes, a reduction in existing taxes and an increase in just one tax rate was the news delivered by the Bahamas Prime Minister Hubert Ingraham as he delivered a US$2.8 billion tax-free budget to Parliament yesterday.

He said his government would instead aggressively go after the revenue already due.

Ingraham said the rates of excise tax on several tourist items are being decreased in order to improve the price competitiveness of retailers.

A number of tariff rate reductions are also being proposed to ensure that similar products carry the same tax load. These include the rate on computer monitors which is being reduced from 10 per cent to “free” to align it with the rate on monitors imported with a computer; and the rate on blood pressure meters which moves from 35 per cent to “free” to align it with the rate on glucose meters and to make this item more accessible the rate on fiberglass and epoxy rebar used in construction.

Several other products will see their tariff rate reduced to zero, including disposable undergarments for infants and baby napkins disposable undergarments for adults and feminine napkin and books.

However, there will be an increase on import duty temporarily, from seven to 10 per cent for every three months the items are in the country.

A further reform was announced in the Real Property Tax Act, to improve collections, of arrears and on an ongoing basis, to reduce the property tax burden on certain properties and to encourage the development of foreign-owned vacant land.

“Specifically, provision is being made to write off the outstanding surcharge accrued on owner-occupied dwellings following the increase in the exemption level to $100,000 in 1994 and, in 2004, in respect of such properties valued at or below $250,000. The outstanding tax is to remain on accounts and be paid. As well, all outstanding taxes are to be paid within six months from the date of the Amendments to the Act, following which date a surcharge will be levied at a rate of five per cent per annum on outstanding balances,” Ingraham said.

He delivered the news of an almost tax-free budget as he acknowledged that the Bahamas is experiencing a severe downturn in the economy, “in a most extreme form - reduced tourism, reduced foreign direct investments, reduced government revenues, reduced employment and contracting living standards”, as a result of the global economic crisis.

He credited his administration’s “prudent economic policy of containing the fiscal debt within the range of 30 per cent to 35 per cent of Gross Domestic Product (GDP)” for providing the fiscal “headroom” that enables it to borrow funds on reasonable terms when the tide of external economic events turns against the country.

“Looking to the uncertain future in this time of global crisis, we are pacing fiscal policy to ensure that not all of the headroom is exhausted. This will permit us to stand ready if global conditions deteriorate further rather than improve, or if the improvement – when it comes – is weak and temporary and is followed by a further deep crisis,” Ingraham said.

He said his administration is aiming this year to improve the efficiency of government services and maximizing revenues.

Among the measures will be reforming and modernizing the Customs Department which is not only critical in protecting the country’s borders, but is also responsible for collecting more than 50 per cent of government revenues.

“It is now imperative for Customs to adapt its modus operandi to the economic and societal requirements of the 21st Century. That involves, among other things, simplifying procedures, efficiently processing shipments and providing transparent, predictable and timely service, while never losing sight of its key protective and revenue duties,” Ingraham said.

He added that it is therefore vital that a fundamental reform and modernization of operations be undertaken, including enhanced utilization of information technology in all Customs systems. To enable the department to move forward rapidly, two international Customs experts are being engaged to guide and support the process of modernization.

The Bahamas Prime Minister said that the Customs Management Act will be amended to put beyond doubt the powers of Customs to protect the revenue of the Bahamas throughout our archipelago. He also said that the introduction of a shift system at the Customs Department, beginning at the start of 2010, will reduce overtime costs and improve service at peak hours of business.

Meantime, the government is moving to protect the important financial services sector in the Bahamas by embarking on negotiation of appropriate information exchange agreements with other countries, starting with the government of Canada.

In giving a review of the Bahamian economy, Ingraham said it was adversely affected in 2008 by the global economic downturn, resulting in the first decline in real activity since 2004. Preliminary estimates indicate that real GDP fell by 1.7 per cent, in contrast to expansions of 0.7 per cent in 2007 and 4.3 per cent in 2006.

“This significant weakness in economic activity reflected declines in tourism, foreign direct investments and related construction, business failures and or contraction, job losses and a consequent falloff in consumer spending,” he said.

“Expectations are that the key tourism and foreign investment sectors will remain weak in 2009, resulting in further weakness in the construction sector and a further increase in the unemployment rate. However, some tempering to this outcome is expected to occur from the government’s accelerated capital works programme,” he added.