IMF backs Bahamas VAT implementation

By:

Vivienne Russell

24 Mar 16

The International Monetary Fund has praised the Bahamas for the successful implementation of a new value added tax (VAT), which has brought more than $500m for the government in the last fiscal year.

web_bahamas_shutterstock_241290667.jpg

Photo: Shutterstock

Following an Article IV consultation, the IMF highlighted the simplicity of the tax policy, strong project management and the electronic system set up for the registration, filing and payment of the tax.

The Bahamas secured $536m in VAT revenue in the first 12 months of its operation – equivalent to 6% of GDP. This exceeded expectations and has helped bring the Bahamian deficit down to 4.4% in 2014/15 from 5.7% in 2013/14.

But the IMF warned that further fiscal consolidation was required and urged the Bahamas to resist any temptation to weaken the VAT regime.

It recommended “further steps to ensure continued success in VAT implementation include strengthening administration and establishing a compliance audit programme.

“Efforts should focus on moving further towards a fully-fledged central revenue agency, with a well-defined institutional and organizational structure, and continued modernisation of customs and property tax administration.”

The review also called for the “hard-won gains” of VAT introduction not to be undermined by looser spending and the IMF called for public pay and employment to be contained and for internal financial controls and procurement practices to be toughened.

The Bahamas is also considered introducing a National Health Insurance system and, although discussions are still at an early stage, the IMF said the funding consequences of such a move should be fully integrated into plans to ensure they were sustainable.

Overall, the Bahamian economy slowed down in 2015 due to weaker domestic demand and the uncertainty over the Baha Mar resort, a luxury development that had promised to offer 5,000 jobs and add 12% to GDP. Due to open in 2014, the resort is still not finished, has been condemned by some as the world’s biggest white elephant and has even harmed the country’s credit rating.

The IMF expects growth to pick up to a modest 1.5% this year helped by increased tourism, while the eventual opening of Baha Mer should provide a further boost.