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THE BAHAMAS for Caribbean Organization of Tax Administrators Belize 21st – 24th July 2008 “Impact of Trade Liberalization on a Modern Tax System” The Bahamas Perspective by 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 Strategic Plan Ensure increased transparency in economic and government systems Form strategic international partnerships with nations within the Caribbean Community and the Association of Caribbean States Negotiate membership in the World Trade Organization to create new markets for Bahamian products Ensuring that investments and trade arrangements agreed and entered into serve the best interest of Bahamians Eliminate to the extent possible, bureaucratic requirements that reduce transparency, 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 2. Recurrent Revenue 3. Recurrent Surplus (1 minus 2) 4. Capital Expenditure 5. Capital Revenue 6. Capital Deficit (4 minus 5) 7. Total Deficit (3 minus 6) 8. Debt Redemption 9. GFS Deficit (7 minus 8) 10. GDP (Current prices) 11. GFS Deficit as % of GDP 12. Government Debt as % of GDP 1,569 1,574 5 250 10 (240) (235) 70 (165) 7,749 2.1 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 US Negotiations with the US must take into account period to liberalise on the goods side of 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