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Bahamians ‘will not be overtaxed’ by VAT

Economist argues those in this country ‘very fortunate indeed’ as it relates to tax burden
Guardian Business Editor

Published: Oct 24, 2013

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Those living in The Bahamas should consider themselves “very fortunate indeed” as it relates to their tax burden, even with the imposition of value added tax, in comparison to the rest of the Caribbean region, a regional economist has argued.

Marla Dukharan, senior economist with RBC Caribbean, said that Bahamians will not be “over-taxed” once VAT comes into effect.

Addressing a VAT luncheon organized by the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), Dukharan pointed out that this nation does not have many other forms of taxation applied that are popular throughout the region.

On average, other Caribbean countries have applied an income tax of anywhere from 25 percent to up to “59 or 60 percent” in Aruba.

Corporation tax, zero in The Bahamas, ranges from 20 to 40 percent elsewhere in the region. Meanwhile, VAT goes as high as 18 percent in Barbados.

“You are not alone and this is not a situation where you will be overtaxed,” Dukharan said. “It’s the only direct tax you have to pay.”

Dukharan made the case for VAT yesterday in front of the packed room of business people, numbering around 150.

She argued that without it, The Bahamas faces a “spiraling” debt situation, given weakness in our key tourism industry and net foreign direct investment inflows in recent years, coupled with structural deficits.

Dukharan also presented a case for why VAT is more preferable to income tax in The Bahamas’ case.

Among the reasons provided, she noted that in the case of countries with a high level of unemployment and a large informal sector, which includes The Bahamas along with many countries in the Caribbean, VAT better allows the government to capture a broader tax base than an income tax, and thereby to generate more tax revenue.

The economist further added that in countries where the workforce contains a large number of expatriates, the implementation of a VAT could cause “many to leave” causing the tax base to “shrink further” and negating the benefits of tax reform.

Dukharan said that on average a “successful “ implementation of VAT can take anywhere from 18 months to 24 months, starting with the initial stages in which The Bahamas presently finds itself in.

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