NASSAU, The Bahamas – While making his Opening Contribution to the Mid-Year Budget Debate 2023/2024, on March 6, 2024, Prime Minister and Minister of Finance the Hon. Philip Davis pointed out that, as of December 2023, revenues were up $72.9 million compared to the same period in the previous budget cycle.
“Examining the primary balance reveals some interesting trends,” he noted, in the House of Assembly. “The primary balance represents a true sense of the government’s fiscal management. It is comprised of the revenues collected minus the expenditure with the exclusion of interest payments on existing debts.
“What makes the primary balance particularly useful as a means of measuring a government’s fiscal performance is its use as an indicator of the success of current measures,” Prime Minister Davis added. “Why? Most debt is historical. It is inherited. For example, we inherited a debt-to-GDP ratio of over 100% from the Minnis administration.”
He explained that that meant that, for every dollar the entire economy generated in a given year, The Bahamas owed a dollar to a lender.
“Because much of a nation’s debt reflects past decisions, when we view the primary balance, we get a better sense of the impact of current efforts without taking into account the inherited burden,” Prime Minister Davis stated.
He added that there had been a “significant” shift from a primary deficit of $15 million, at the end of December 2018, to a primary surplus of $42.4 million in the present period. That reversal, he said, indicated a “positive change in the government’s financial position.”
“It is worth noting that this is not the first time under this administration that we have experienced a primary surplus,” Prime Minister Davis stated. “In fact, during the same period last year, we also observed a primary surplus of $4.9 million. These consecutive half-years of primary surpluses highlight the government’s mandate to generate revenue and manage its expenses more effectively, thus contributing to overall fiscal stability.”
He noted, however, his government still recognized that interest costs were important to monitor, as it continued to carefully manage The Bahamas’ national debt, much of which, he pointed out, was inherited.
“In fact, we have been able to reduce the Debt-to-GDP ratio by nearly 20% – from the 100% I mentioned under the previous administration to 81.7% as it currently stands,” Prime Minister Davis said. “This is a testament to our prudent financial management strategies.”
“Overall, we’ve seen an increase of $24 million in expenditure versus the over $70 million increase in revenues,” he added. “As a result, despite any missed projections, the net deficit of $258.7 million represents, in our view, a decrease from the previous budget cycle.”
“The fact is: the deficit is going down, not up. We have a lot more progress to make, but the indicators of success are moving in the right direction.”
Prime Minister Davis stated that, for the remainder of the budget cycle, his Government’s fiscal targets remained unchanged.
“The Government has not adjusted its revenue, spending, or deficit forecasts,” he said. “We remain confident in our projections of strong financial performance in the latter half of this fiscal year.”
He added: “This is not just wishful thinking. Revenues tend to increase during the peak winter months. And we also expect to see increased receipts from improved collection efforts, as well as the new business license fees.”
Prime Minister Davis announced that, in the medium term, his Government’s projections also remained the same.
“The revenue enhancement measures we’ve rolled out are expected to keep us on track to arrive at our goal of revenue making up 25% of GDP in just a few years,” he said.
“We will achieve this goal through the efficient collection of taxes, including the collection of maritime-related taxes and the introduction of a large taxpayers unit focused on businesses making more than $5 million annually – not the small corner store or side hustle, but the multi-million dollar businesses that have not been living up to their tax obligations,” Prime Minister Daivs added.
He noted that his government’s efforts will crack down on the over $200 million in missed revenues, due to the smuggling of goods into the country. That included $100 million directly attributed to the smuggling of alcohol and tobacco products, he said.
“We are tightening the collection of VAT, Customs Duties, Business Licence fees, and real property taxes, generating the revenues needed to live up to our international obligations while also launching the initiatives needed to empower our people,” Prime Minister Davis stated.
“We are living up to our promise to the Bahamian people to avoid new taxes that unnecessarily place additional strain on families by improving the collection of taxes and fees that are already on the books,” he added.
Prime Minister Davis stressed that the fact remained that, since coming into office, his government had lowered the overall VAT rate, and lowered custom duties on many essential goods.
He noted that, where taxes and fees had been increased, they were primarily geared toward certain categories of business owners, boat owners, and property owners.
“For example, the Qualified Domestic Minimum Top-Up Tax, which is our approach to corporate income tax, will only affect multinational corporations earning more than 750 million euros per year,” Prime Minister Davis pointed out.
He added: “As much as I’d like to live in a future in which many Bahamians own multinational companies bringing in nearly a billion dollars a year, we are not there yet as a country. So, we can safely say that not a single Bahamian-owned venture will be directly affected by this tax. And through this tax, we hope to generate an additional $140 million per year in government revenue.”
Prime Minister Davis stated that there were those who had begun saying that droves of businesses will leave The Bahamas as a result of that tax.
“To be clear, this tax is, in part, designed to live up to our commitments to the OECD,” Prime Minister Davis said. “The vast majority of countries in the world, including those like us who didn’t previously have corporate income taxes, will be introducing similar regimes or face the threat of blacklisting and other possible consequences.
“Rather than wait around to be accused of non-compliance, we have taken proactive action to introduce this corporate income tax.”
Prime Minister Davis noted that The Bahamas’ prospects as an appealing jurisdiction for investments and the operation of multinational corporations were just as strong as they ever were.
“If these companies don’t pay their tax here, they would simply have to pay the same tax to their home jurisdiction,” he said. “We have managed to retain many of our competitive advantages as all nations will be on the same playing field in relation to corporate income taxes.”
Prime Minister Davis noted that, if those companies were operating in The Bahamas and his government had the opportunity to get 15 percent of their taxes, the government needed to collect it in The Bahamas.
“It only makes sense,” he said. “It is only prudent for us to make sure they pay their fair share here and not in their home jurisdiction.”
Prime Minister Davis added: “But the bigger point here, the one that speaks to the true importance of this change is: why should companies operating within The Bahamas making more than 750 million euros per year not contribute at all to our country? Why are there people complaining about this change? How does the status quo benefit us? It is past time that we changed the rules so that everyone who benefits from being in The Bahamas pays their fair share for being in The Bahamas.”
Prime Minister Davis said that his government saw a similar approach when it came to Real Property Taxes.
“The government will benefit from the collection of up to $800 million in real property tax arrears,” he said. “In fact, we have already begun collecting on those monies owed.
“We are projected to collect $340 million this year compared to less than $250 million collected at the beginning of this term.”
Prime Minister Davis noted that that was despite moving the threshold for payment from $250,000 up to $300,000. He pointed out that there were many people whose properties were worth below $300,000 who now pay no real property tax at all.
Prime Minister Davis added that the vast majority of the real property taxes owed are by owners of high-value properties – a huge percentage of those high-valued properties are second home owners.
He said: “Do we not feel that people who buy these nice vacation homes in some of the most beautiful areas that our nation has to offer should be paying their fair share? Why should they get to skip out on their tax obligations when the average middle-class family is living up to their responsibilities? The system of non-enforcement as it existed, was patently unfair.”
Prime Minister added: “Everyone is now paying their fair share, No exceptions. And it doesn’t matter how much money you have, how much power you have, or who you know. The Department of Inland Revenue has stepped up to ensure that tax collection is done in a fair, transparent, and efficient manner.”
He stated that where his government’s policies have had unintended effects, it is in the process of making adjustments.
“You will see this with our boating fees, for example,” Prime Minister Davis noted. Our intention was not to impact the owners of small boats or small-scale fishermen.
“So, we are in the process of making adjustments to fine-tune our focus and provide relief for these groups, while also ensuring that owners of luxury crafts, who come here to sail and enjoy our pristine waters, pay their requisite fees.”
