An Alternative Tax Regime for the Bahamas

John Fisher

[ GroundSwell, May-June 2005]

Editor's note: John Fisher is the chairman of the Ontario/Quebec chapter of Common Ground-USA. He winters on Andros Island, Bahamas. In January 2005, the following was sent to 26 Bahamian politicians, media people and concerned citizens. The cover letter quoted from the April 15, 1977 Miami Herald, "Bahamas Land Tax": "Bahamian real estate, like that in the Caribbean and other resort areas, appreciated rapidly during the 1960's fueled largely by speculative land buying in the outer islands." Prime Minister Lynden Pindling had the foresight to state, "When we have put in the improvements in all these islands then some fellow who bought a lot for $3,000 comes back, sells it for $10,000." Past Bahamian governments have recognized that social demands create value to a nation's limited natural resources, which should be recovered for community purposes. Will Bahamian decision makers see the justice and the sustainable growth potential in shifting the revenue source for government from labour and business to the natural resource base?) Included in the packet was the list of 14 Green Economics Principles by Frank de Jong, leader of the Green Party of Ontario.

An Alternative Tax Regime for the Bahamas

The media has been reporting that the Bahamas is looking for an alternative tax regime. As an eight year frequent visitor to Central Andros (Island) and with a teaching background in economics and geography, I would suggest the Government avoid taxing the efforts and wealth of the private sector and instead collect the resource rents that are created by the presence and activity of the community as a whole.

Taxes on production (manufacturing, services, trade) are a penalty for "doing business." The recent duty exemption for building materials in the Family Islands is an admission that such taxes (income and sales taxes, VAT, property taxes on improvements) discourage production incentives, hurt the most unfortunate in society and encourage an underground economy.

Bahamian location values are generated because these islands are on favourable trade routes for commercial and tourism traffic (air and sea). Internally, certain prime resources such as the Andros Fresh water lens and Nassau harbour have a potential unlimited demand from inside and outside the country. Other resources that have untapped or undertapped revenue potential are urban land, especially on New Providence, the reefs, pine forests, beaches and marine life.

What are these worth to Bahamians? Are Bahamians getting good value for these in terms of resource rents for their use? Is the government using these resource rents to the best advantage?

A particular problem for the Bahamas, is the confusing and wasteful use of "generation lands." Like all land, these should be assessed at market value and taxed accordingly. Families would be encouraged to deal with boundaries, property rights within the family or just pay their fair share (i.e., for roads, etc.) to the larger community as a family.

In other words, social actions and decisions like giving extraction permits or zoning etc. give natural resources a value far beyond their use in the normal production process. These socially generated values, which now go mostly into private pockets, should be returned to the society that created them, as for example a Social Dividend (Alaska) or Heritage Fund (Alberta).

There could be a gradual "tax shift" off duties, buildings, and business to resource rents. This would avoid a sudden shock to the economy.

There would be an average household use exemption (i.e., for water, conch, fish, etc.) And above that the user would pay to use the common wealth of the commonwealth.

Another positive feature of collecting resource rents is the environmental impact. Putting a price on a nation's ecosystems would encourage users, especially the corporate user, to give more consideration to conservation practices.

The Ontario Green Party Leader, Frank de Jong, has developed a list of 14 Green Economic Principles. Clearly this type of tax regime removes most disincentives to labour and business while encouraging wise use of a nation's natural resources. Hopefully the decision makers in the new tax regime process will consider the natural resources revenue source as a viable alternative.