During a presentation at the Abaco Business Outlook Robert Myers, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, said that poor compliance caused by corruption, limited accountability and a lack of enforcement, has resulted in the Bahamian formal economy paying a disproportionate share of the country’s taxes.
In Late 2013 it was reported that the government was successfully collecting a mere 30% of taxes owed. Mr. Myers said that had compliance with existing taxes been at 75-80 per cent, there would be no need for Value-Added Tax (VAT).
“Compliance is absolutely critical, not just VAT compliance but all taxes are just critical,” he said.
“If we are not paying our fair share of taxes, then taxes have to go up. Frankly, the private sector is overpaying its share of taxes. The problem is that there is a lack of accountability and enforcement of the rule of law.
“Compliance is low and those that are paying taxes are overpaying because we have to make up for all of the ones that don’t pay.” Mr. Myers added.
He said that with the Government now set on moving forward with VAT at 7.5 per cent come January 1, more focus must be placed on fiscal and energy reform. “Now we must demand Fiscal and Energy Reform.”
“GDP growth is only going to happen if we can become competitive,” he added.
Mr. Myers said government stability was as important as the economy itself. “You have heard recent comments from the IMF and ratings agencies, as of late, talking about the threat of devaluation,” he added.
“These are very scary and real concerns. If we don’t address the Government’s concerns and the private sector’s concerns, those are the places we will end up.”
He said that the country’s fiscal health is in poor condition. “The fiscal status quo is unsustainable and mounting debt, continued deficits, unchecked capital & recurrent spending, inefficiencies, corruption, lack of accountability, adherence to the rule of law and poor policies are making the Bahamas regionally and globally uncompetitive.”
“We will continue to see negative fiscal results and further downgrades by rating agencies until the leadership and government of The Bahamas implement fiscal reform and not just tax reform.”
He said that the Bahamian dollar is pegged to the US dollar which means global competitiveness is key for the economy’s return to equilibrium. “The Bahamas must be globally and regionally competitive by creating an economic climate which attracts business and tourism,” he said.
Mr. Myers said that existing tax compliance is well below international standards and the “Rule of Law is not enforced evenly or fairly.”
Electricity costs are twice what they should be and thus cause a huge drain on foreign reserves and businesses to be uncompetitive. He added that the cost of debt from banks is too high and is choking growth.
“We must address the problems not the symptoms,” he said. The Bahamas’ debt to GDP ratio is too high – currently at 66 percent with a negative Baa1 rating.
“What happens if we do nothing? Our credit rating will continue to decline, our debt will cost us more to service (interest payments on debt alone are currently above $210,000,000 per year), there will be greater pressure to maintain foreign reserves and we run the risk of dollar devaluation against the US dollar.”
He said that as taxes rise to meet larger debt businesses will become less competitive regionally and globally.
Mr. Myers said we must demand enforcement of the rule of law and improve private sector legal enforcement – “The informal economy must be shut down immediately.”
He added that the country needs to legislate a Government Watchdog or Office of the Ombudsman, enact the Freedom of Information Act and apply the rule of law evenly and fairly to all citizens including politicians and civil servants.
Mr. Myers said we need to demand accountability in revenue collection, making civil servants accountable, comply with International Financial Reporting Standards (IFRS) and stop government overspending.
“According to the 2014 mid-year budget the Government is running a monthly deficit averaging almost $40 million. That’s $1.3 million dollars per day!”
He added that in twenty years recurrent expenditures have nearly tripled but government services have not improved by the same amount.
He said that data shows that the government spends 34.4 percent of their budget on civil service wages while public ownership of utilities has led to high prices and inbuilt inefficiency.
He noted that Maurice Mctigue (Cabinet Minister in New Zealand) said “We sold public companies and productivity went up and cost of services went down translating into major gains to the economy” (Maurice McTigue)
Mr. Myers said “Experience in countries such as New Zealand shows us that this process can be reversed dependent on the introduction of high levels of fiscal reform, transparency and effective enforcement of the rule of law.”