THE BAHAMASTHE BAHAMASforfor

Caribbean Organization of Tax Caribbean Organization of Tax AdministratorsAdministrators

BelizeBelize2121stst – 24 – 24thth July 2008 July 2008

“Impact of Trade Liberalization on a Modern Tax System”

The Bahamas PerspectiveThe Bahamas Perspective

byby

Ehurd Cunningham F.C.C.A.Ehurd Cunningham F.C.C.A.

Strategic Plan on Trade

Five principles that guide the strategic plan on trade

Designed to enhance the preparedness of the economy for success in an increasingly competitive international environment

Principles that Guide the Principles that Guide the Strategic PlanStrategic Plan

Ensure increased transparency in economic and government systemsEnsure increased transparency in economic and government systems

Form strategic international partnerships with nations within the Caribbean Form strategic international partnerships with nations within the Caribbean Community and the Association of Caribbean StatesCommunity and the Association of Caribbean States

Negotiate membership in the World Trade Organization to create new Negotiate membership in the World Trade Organization to create new markets for Bahamian productsmarkets for Bahamian products

Ensuring that investments and trade arrangements agreed and entered into Ensuring that investments and trade arrangements agreed and entered into serve the best interest of Bahamiansserve the best interest of Bahamians

Eliminate to the extent possible, bureaucratic requirements that reduce Eliminate to the extent possible, bureaucratic requirements that reduce transparency, contribute to delay and increase coststransparency, contribute to delay and increase costs

Safeguards

Injury to domestic industry producing like or directly competitive products

Disturbances in a sector of the economy particularly where the disturbance produces social problems

Raise enough revenue to finance essential expenditure without recourse to excessive public sector borrowing

Fiscal Summary 2008 /9 $ Million

1. Recurrent Expenditure 1,5692. Recurrent Revenue 1,574 3. Recurrent Surplus (1 minus 2) 5 4. Capital Expenditure 250 5. Capital Revenue 10 6. Capital Deficit (4 minus 5) (240) 7. Total Deficit (3 minus 6) (235) 8. Debt Redemption 70 9. GFS Deficit (7 minus 8) (165) 10. GDP (Current prices) 7,749 11. GFS Deficit as % of GDP 2.112. Government Debt as % of GDP 35.2

Policy decisions that have Implications for Trade policy

Trade in Goods:

Amalgamation of customs tariff and stamp tax

Simplification of tariffs (reduction in numbers of rates)

Eliminate multi-rates for similar items

Simplification of documentation, automating processes and use of scanners

(Continued)

Trade in Services:

– Creation of a one-stop investment agency

Intra-Regional Trade

Anticipated benefits to be gained

Bahamas trade with the region is miniscule (hardly exceeds one-half of 1% of total imports) Participation CSME may provide more

regional export opportunities not currently available

Trade with the United States

80 per cent of imports come from the US80 per cent of imports come from the US

Negotiations with the US must take into Negotiations with the US must take into account period to liberalise on the goods side of account period to liberalise on the goods side of trade, Tariff and Excise Tax regime trade, Tariff and Excise Tax regime

Administrative co-operation

Essential for the implementation and control of preferential treatments

Necessary to avoid irregularities and fraud

Customs and Legislative Procedures

Need to protect and facilitate trade through enforcement of and compliance with legislative requirements

Need to ensure that requirements for economic operators are reasonable

Need to apply single administrative document or electronic equivalent

Need to apply modern customs techniques, including risk assessment, and simplified procedures at imports and exports

Need for transparency

Implications for Revenue

Consider: Sources of revenue

Ranking of the revenue source

Elasticity of the revenue source

Impact on Government Revenue

Average rate of Customs duty was 35% but now 42%

Reduction in revenue would have to be replaced from alternative source

Action Plan

Determine the levels of imports and exports

Determine which items will be placed in the list of Excluded, Zero (no duty) and Phased Items

Availability of reliable statistical data

Action Plan (Cont’d)

Amalgamate stamp duty with Customs tariff

Introduce new Excise Act (apply equally to both imports and domestic production)

Review of duty free items Enhancement of revenue compliance

Enhancement of Revenue

Engagement of Revenue Compliance Officers

Use of information technology to block leakages in revenue

Improved customer service (Awareness of revenue implications)

Alternative Revenue Sources

Trade policy will bring about the need to address other issues:– Political acceptability– Revenue adequacy and stability– Revenue diversification– Economic neutrality– Administrative machinery

Possible Alternatives to Customs Duty

Areas being discussed in the public domain

Sales Tax

Value Added Tax

Conclusion

Policy on trade is a sensitive matter Every effort should be taken to develop a

modern and efficient tax system (avoid too many small tax systems)

Policy is often the art of the possible, rather than the pursuit of the optimal