Mr. Moderator, Rev. Humes, Senator The Hon. James Smith, Minister of State for Finance, Mr. Clive Nicholas, President of COTA, Ms. Beverley Williams, Comptroller of Inland Revenue, St. Kitts and Nevis, Vice President of the Senate of The Bahamas, Mrs. Ruth Miller, Financial Secretary, The Bahamas, Ms. Marva Lee, Secretary of COTA, Heads of Tax Administrations and other representatives of COTA Member Countries, Representatives of collaborating organizations, Ladies and Gentlemen,

Let us begin, on behalf of the CARICOM Secretariat, by adding our welcome to that of the Master of Ceremonies and of the President of COTA. Mr. Chairman, Let us imagine the next COTA Meeting being held in The Bahamas - 2014, the same 10 years internal as the last one held here 1994. That is not a long time, I was in a meeting here in this hotel, just opened, twenty years ago, when Heads of Government adopted the famous Nassau Understanding on Structural Adjustment and Closer Integration for accelerated Development in the Caribbean Community in July 1984. The newly independent Commonwealth of The Bahamas had become a full Member of the Caribbean Community, not the Common Market in July 1993. How would the economies have adjusted by 2014?

The majority of the CARICOM economies in 1984 or even 1994 were producers and exporters of goods - The Bahamas and Antigua and Barbuda were the notable exception. They were already service-based economies. In 2014, almost every CARICOM economy will be serviced based. Already by 2002, services accounted for more than 60 per cent of the Gross Domestic Product (GDP) of some eleven (11) of the Member States. Guyana, Suriname and Trinidad and Tobago might still be exceptions in 2014 but services would have become very significant even in those economies.

In 1984, and even in 1994, the bulk of the revenue of the CARICOM countries was from direct taxes on income and/or indirect taxes on trade, the latter being collected at the border. The Bahamas and Antigua and Barbuda, and by 1994 St. Kitts and Nevis relied heavily on border taxes as they had no tax on income.

In 2014 the change in the production structure will be accompanied by a dramatic change in the revenue base. There will be almost no revenue from border taxes. In 2001 and 2002 the CARICOM countries imported an average for the two years of US$9.3 billion with an estimated tax revenue (customs duties) of about US$0.87 billion. Eighty (80) percent of that import was from countries in the Americas, including intra-CARICOM, and the European Union.

By 2014, CARICOM countries could be members of the Free Trade Area of the Americas (FTAA) and also be in a Free Trade "Partnership" arrangement with the European Union. The actual phase out of tariffs will depend on the rate of reduction negotiated in FTAA and EPA negotiations for the More Developed Members of CARICOM. While imports from the rest of the world had increased from 16 percent to 20 percent between 1996 and 2001/2002, this trend would have been reversed with trade being diverted particularly to the Free Trade partners in North and South America and in Europe.

The current average tariff of approximately 11.5 percent would also have been reduced further under WTO liberalization pressures. All CARICOM countries, including The Bahamas, currently the only exception with non-Independent Montserrat, would be members of the WTO - my view, there is no policy decision to that end, in The Bahamas. However as this Organisation increases its influence on policies in non-trade in goods areas such as services, Government procurement intellectual property and disputes settlement among countries, States will need to be there to have any chance of protecting themselves. Services have subjected to the rules of the General Agreement on Trade in Services (GATS) introduced as an integration part of the WTO Agreement on 1 January 1995 following the Uruguay Round Negotiations The Bahamas economy is over 90 percent services based.

CARICOM countries would have faced or be faced with a fundamental decision relating to border taxes. Do they maintain a customs regime for 20 percent or less of imports at a falling unit rate? The balance of probability is that the economically rational decision will be no. The demand for revenue will not decrease however.

In addition to the pressure on border taxes, many CARICOM countries will continue to face the irrational and inequitably applied pressure from the OECD countries on the taxation of mobile capital. This area of service - international business services - in which a number of CARICOM countries including The Bahamas, have developed a comparative advantage, has been a significant source of revenue and economic activity.

By 2014, CARICOM Governments, as a group, and Tax Administrations would have faced or be faced with some fundamental decisions or questions, such as:

-      Do they continue to operate a Customs Tariff Administration System for a proportionally small and declining percentage of their import trade?

- What alternative tax as can be introduced to satisfy the revenue and equity considerations? Indirect taxes can be very regressive if not well conceived and structured.

-      How should Tax Administrations be organized to collect taxes from a variety of points? One of the advantages of a customs-based, goods focused system is the known and small number of points of entry. In addition, the physical good could be seen and held until such time as the customer (taxpayer) is ready to pay.

- With the increasing globilisation of transactions, the greater proportion of services and the growth in Internet trade, what systems and skills are required in Tax Administrations?

Mr. Chairman, the theme of this 18th General Assembly of COTA, focusing as it does on human resources, the national environment and changes in taxation, indicates an appreciation of the need for, and direction of change. The magnitude and the urgency of the challenges are perhaps still not fully appreciated; however, Issues such as the need for harmonization, especially of non - Goods related taxes, alternative sources of revenue and the modernization of Tax Administrations have been on the regional agenda for some time. The issues relate both to Policy and Administration. Time is however no longer a luxury available to Caribbean Tax Administration. It might be necessary for COTA to take the initiative and cause a joint meeting of both the Policy and the Administrations. The direction of modernization should facilitate this.

Chairman, You might wish to consider whether your next meeting could not be so structured and focused as to facilitate this joint discussion.

Mr. Chairman, in closing, I wish on behalf of the Secretary-General and the CARICOM Secretariat, to compliment all twenty-eight (28) young persons who participated in the COTA Essay Competition. Their interest in taxation matters augurs well for the future since, increasingly, this will be the only source of income available to Governments as they divest economic activities, as official development assistance (ODA) dries up and as Governments are discouraged from competing with the Private Sector for loan resources.

I want to congratulate, in particular, our prize winners especially the First prize winner who is here today. Keep writing.

Thank you Ladies and Gentlemen.

26 July 2004