The Bahamas had the highest value-added tax (VAT) revenue ratio (VRR) in the Latin America and Caribbean (LAC) region just before the COVID-19 pandemic, according to a just-released revenue statistics report by the Organisation for Economic Co-operation and Development (OECD).
The VAT revenue ratio is the ratio of the actual VAT revenues to the product of final consumption (net of VAT revenues) and the standard VAT rate.
The OECD stated that the ratio provides a sense of VAT revenue loss related to exemptions and reduced rates, fraud, evasion and tax planning as well as weaknesses in tax administrations.
The Bahamas’ VRR was 82, compared to Barbados’ 68, St. Lucia’s 64 and Trinidad and Tobago’s 35.
“The highest VRR is seen in The Bahamas and many other Caribbean countries also have a high VRR. Countries in this sub-region only introduced VAT in the 2000s, much later than countries in the other sub-regions.
Their VRR partly reflects a commitment to international good practice, including a broad-based VAT with a low standard rate, a limited number of exemptions and no reduced rates,” stated the report “Revenues Statistics in Latin America and the Caribbean 2021”, which was released yesterday.
“This is the case for The Bahamas, which introduced VAT in 2015 at a standard rate at 7.5 percent (later increased to 12 percent in July 2018). While The Bahamas had one of the highest VRRs in the LAC region, this may be in part because it receives a high share of revenue from tourism compared to other countries.
Receipts from international tourism as a percentage of total exports were 77 percent in 2018, compared to an average of 8 percent in the LAC region as a whole.”
Overall, The Bahamas’ tax-to-GDP ratio in 2019 was 18.7 percent. Although it is below the LAC average of 22.9 percent, the OECD acknowledged the steady pace of growth year over year.
“The tax-to-GDP ratio in Bahamas increased by 2.1 percentage points from 16.7 percent in 2018 to 18.7 percent in 2019. In comparison, the LAC average increased by 0.3 percentage points between 2018 and 2019 to 22.9 percent,” the report states.
“Over a longer time period, the LAC average has increased by 4.7 percentage points, from 18.2 percent in 2000 to 22.9 percent in 2019, whereas over the same period the tax-to-GDP ratio in The Bahamas has increased by 6.5 percentage points, from 12.2 percent to 18.7 percent. Since 2000, the highest tax-to-GDP ratio in The Bahamas was 18.7 percent in 2019 and the lowest was 10.4 percent in 2002.”
For the first half of this 2020/2021 fiscal year, VAT receipts declined by 44.4 percent due to the slowed economy as a result of the COVID-19 pandemic.