The Bahamas is underperforming in revenue collections and has been trailing the rest of the Caribbean in this regard.

The commonwealth’s revenue has averaged 15 per cent of its Gross Domestic Product (GDP)—well behind the regional average of 24 per cent of GDP.

Given this state of affairs, the Inter-American Development Bank (IDB) is recommending that The Bahamas revise its revenue collection policy and administration, as well as to the organisational structure of the Department of Inland Revenue (DIR).

This is in order to generate greater revenue collection in the years ahead. In its latest Caribbean Quarterly Bulletin, the IDP points out that The Bahamas has historically underperformed in revenue collection when compared to the rest of the Caribbean region.

The IDB notes that the tax authorities in The Bahamas have paved a path to greater revenue collection through the introduction of value-added tax and changes in customs revenue collection, but more can be done. 

Recommendation on tax reforms

According to the IDB bulletin, the multilateral funding agency highlighted “Tax administration could be enhanced through greater documentation, as most of the core processes are not documented or standardized, posing a risk for business continuity….”

“The Bahamas should also consider establishing a special organizational unit devoted to preparing economic studies that can analyze tax collection trends, monitor the hidden economy, examine revenue yields from audits, understand taxpayer behaviour and provide input to government budgeting processes,” the IDB further argued.

The Bahamian government has placed on record its commitment to the development of a more equitable tax system and the pursuit of progressive changes in the collection of taxes.

The government, in its latest fiscal strategy report, assured it will strengthen tax compliance, improve tax administration as well as robust updating of the tax incentives regime given to investment projects.

Bahamas macroeconomy in freefall

However, the IDB has observed that The Bahamas’ macroeconomic and fiscal position has been in freefall for several years and worsened as a result of the external shocks of Hurricane Dorian and the COVID-19 pandemic. “Nearly a decade of sizeable fiscal deficits has caused a rise in the level of government debt,” the IDB remarked.

The IDB showed that The Bahamas’ primary fiscal deficit averaged 1.3 percent of GDP between FY (fiscal year) 2009/2010 and FY2019/2020, which contributed to increasing the debt level from 35.1 percent of GDP in FY2009/2010 to 69.2 percent of GDP in FY2019/2020.

According to the IDB bulletin, “Macroeconomic and fiscal indicators have also worsened as a consequence of recurring external shocks. The Bahamas has been hit by six hurricanes over the past decade and is still facing severe challenges due to COVID-19.”