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News Americas, NASSAU, Bahamas, Fri. Feb. 9, 2024: The Government of The Bahamas has announced plans for tax reforms that will impact the Bahamian private islands owned by cruise lines, ending their nine-year value-added tax (VAT) free status. This confirmation comes amidst a reveal of a Department of Inland Revenue “guidance document” from Simon Wilson, the Ministry of Finance’s financial secretary obtained by the local Tribune newspaper.

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An aerial view of Coco Cay, the private island for Royal Caribbean International cruise line, in the Bahamas. (Joe Burbank/Orlando Sentinel/Tribune News Service via Getty Images)

According to the document, tax authorities intend to change the tax treatment of goods and services supplied to millions of tourists visiting these locations annually by imposing VAT on all such transactions at the standard 10.0% rate within the upcoming weeks.

Wilson emphasized the government’s disagreement with the International Monetary Fund’s (IMF) suggestion of introducing a personal income tax targeting the top 10.0% of earners, among other reforms, to achieve its 25% revenue-to-GDP goal. He argued that the current tax system possesses adequate “buoyancy” to meet revenue ratio ambitions.

However, the IMF’s proposed reforms, including the implementation of corporate and personal income tax regimes, might face resistance in The Bahamas due to the absence of historical taxation of such kinds. Additionally, their execution would necessitate substantial investment in training personnel and technology for administration.

The Davis administration has set a target for government revenues to equal 25.0% of GDP by the 2025-2026 fiscal year. Yet, without the outlined reform package, the IMF projections indicate that this ratio would persistently remain just below 22.0% through 2032-2033.

These proposed changes, notably the new VAT and discussions regarding a corporate income tax, could signify a positive step for The Bahamas, whose revenues have historically relied heavily on tourism. This dependence renders its economic activity and fiscal position susceptible to industry-related adversities, including climate-related and economic shocks. However, the extent and impact of these tax restructuring measures remain to be seen.

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