The Bahamian economy: tourism, finance and no income tax

How the Bahamian state pays its way

The Bahamian government levies no income tax, no corporate tax, no capital gains tax and no wealth tax. It raises its revenue from import tariffs, value added tax, licence fees, property tax and stamp duty, and Britannica notes that public spending is constrained by that reliance on indirect taxes, which fall mainly on tourism and external trade. Payroll contributions fund social insurance, 3.9% of pay from the employee and 5.9% from the employer. Tax revenue came to 17.2% of GDP in 2010, the latest year the Wikipedia country article gives.

The arrangement is old, and it is the reason for much of what the economy became. Britannica attributes the arrival of several hundred banks and trust companies to the absence of income and corporate taxes and the guaranteed secrecy of financial transactions. Two shocks then arrived in quick succession: Hurricane Dorian in September 2019, which the Inter-American Development Bank costed at more than a quarter of GDP, and the COVID-19 pandemic, which reached the islands in March 2020 and stopped the tourism on which the revenue depends.

The pressure shows in the debt. The IMF's 2025 Article IV review put central government debt at 78.3% of GDP in 2023 and 73.8% in 2024, and said in December 2025 that at about 74% it remained elevated despite three consecutive years of primary surplus to fiscal 2024/25. The overall deficit narrowed to 0.5% of GDP that year. The authorities' own target is debt of 50% of GDP by fiscal 2030/31, and the IMF staff estimated that reaching it would need measures beyond those planned.

What the IMF proposed goes to the heart of the model. The staff statement of 12 December 2025 recommended raising the standard VAT rate to around 15%, which it called the midpoint of regional peers, and cutting transfers to state-owned enterprises, the health and water corporations above all. When the Executive Board concluded the review on 4 February 2026 its appraisal went further and listed the introduction of corporate and personal income taxes among the measures that could close the gap. The budget for fiscal 2025/26 had already introduced a Domestic Minimum Top-Up Tax on large multinational corporations, and it targets an overall surplus.

What the IMF measured in its latest review

The IMF's selected indicators, published with the Board's conclusion on 4 February 2026, give the recent path of the economy and the staff's projections. The 2025 column is an estimate and the later years are projections.

Growth in 2025 came from construction and cruise tourism, the staff wrote, and they expected it to slow toward the economy's potential rate, which they assessed at 1.5% a year, because stayover tourism had stopped growing. Unemployment was 9.3% in the second quarter of 2025. Inflation was 1.3% in July 2025, held down by lower world energy prices.

The staff singled out the labour market. Jobs in tourism and services are labour-intensive, seasonal and often outside standard hours, self-employed workers in construction are exposed to informality, and employers name skill shortages as a main obstacle. Housing is the other: mortgage lending is limited, new housing construction has been weak, and legacy non-performing mortgages are still being worked off.

What tourism is worth and how it is counted

Tourism's weight in the economy is the figure the sources agree on least. Britannica puts it at more than a third of national product and about two-fifths of the workforce. The Wikipedia economy article gives about 51% of GDP and about half of employment. The Wikipedia country article gives about 70% of GDP. None of the three gives a year for its share.

The visitor counts are firmer. The Ministry of Tourism, Investments and Aviation reported on 28 January 2026 that 12.5 million visitors arrived in 2025, 11.4% more than in 2024, when the total was about 11.22 million. Sea arrivals exceeded 10.6 million, 86.5% of the total. Stopover visitors numbered more than 1.8 million, and about 1.7 million foreign visitors arrived by air.

The IMF reads the two streams separately. Its December 2025 statement credited buoyant cruise tourism, with construction, for growth in 2025, and expected growth to slow in 2026 partly because stayover tourism had stagnated. It also expected new airport, hotel and cruise-destination projects to ease capacity limits in the industry.

Where visitors come from is the economy's largest single exposure. The IMF put the share of tourist inflows from the United States at around 80% in December 2025, and the Wikipedia economy article gives more than 80%. The Ministry's 2025 figures show the stopover market concentrated on New Providence, with about two-thirds of stopover visitors staying in Nassau and on Paradise Island and nearly 30% going to the Out Islands. Grand Bahama passed one million arrivals in 2025, which the Ministry reported as the first time in more than 22 years.

How Nassau became an offshore financial centre

Financial services are the second pillar, and again the share depends on the source and the year: about 15% of GDP in the Wikipedia country article, up to 17% or nearly 20% in the Wikipedia economy article, and about 20% as recently as 2019. As of December 1998, 418 banks and trust companies held Bahamian licences.

The modern industry was built by statute. The International Business Companies Act of January 1990 simplified and cheapened the incorporation of offshore companies, and more than 100,000 were set up within nine years. Asset protection trusts were legalised in February 1991 and the Foundations Act followed in 2004.

Regulation came under outside pressure. After the Financial Action Task Force blacklisted the Bahamas, the government passed a package of laws in December 2000 that created a Financial Intelligence Unit and required banks to verify the identity of their customers, and many international businesses left. The country was removed from the FATF grey list in December 2020. The IMF's 2025 statement records work on the risks identified in a 2024 national assessment of money laundering and a review of the anti-money-laundering framework by the Caribbean Financial Action Task Force planned for late 2026. The Wikipedia economy article notes that the European Union lists the Bahamas among Caribbean jurisdictions it considers uncooperative on tax transparency.

Digital assets are the newest line. The DARE Act of 2024 upgraded the regulation of digital assets, which the IMF asked the authorities to keep implementing. The country's best-known encounter with the sector came earlier, in November 2022, when the cryptocurrency exchange FTX collapsed and the Securities Commission of the Bahamas seized assets worth $3.5 billion to return to creditors and customers.

What Freeport was built to do

Grand Bahama's economy rests on a contract. Under the Hawksbill Creek Agreement, signed on 4 August 1955, Wallace Groves's Grand Bahama Port Authority received some 50,000 acres in the centre of the island for 99 years, a duty-free zone and the power to license the businesses inside it, and undertook in return to dredge a deep-water harbour and build an airport, a hospital and schools. The tax exemptions were to run to 1985, and legislation passed in 1993 extended most of them through 2054. The Grand Bahama Museum records that Groves also held an option on a further 50,000 acres, and that the island he took on had few roads, no modern utilities and no serviceable harbour, while its main employer, the Abaco Lumber Company, was near the end of its working life in pine woods that would take 75 years to regrow.

The industrial base that followed is small in number and specialised. A Hong Kong firm, Hutchison Whampoa, built a container transshipment port at Freeport. The BORCO terminal there transships oil, PharmaChem Technologies makes pharmaceuticals and a wet dock repairs cruise ships. The Grand Bahama Museum describes the agreement as turning an isolated island without a serviceable harbour into the most prosperous district after New Providence.

What the islands produce and what they import

Almost everything the islands consume comes by sea. About 80% of food is imported, most of it from the United States, and electricity is generated entirely from imported petroleum and liquefied natural gas, according to Britannica. Only a tiny share of land is arable and the soils are shallow. Farming and fishing together account for about 5% of GDP in the Wikipedia economy article, and the catch is spiny lobster, grouper and conch.

Manufacturing is limited. Britannica lists rum and other spirits, cement and pharmaceuticals, with canned fruit and frozen lobster; the Commonwealth Brewery in Nassau brews beer; sea salt is dried in the sun on Great Inagua, and aragonite, a limestone with industrial uses, is mined from the sea floor at Ocean Cay. The main exports Britannica names are petroleum and rock lobster.

The United States is the dominant trading partner, followed by a list Britannica gives as China, Panama, Ireland, the U.S. Virgin Islands, the Turks and Caicos, the United Kingdom and Japan. The IMF recommended in 2025 widening the range of countries the islands import from, to cut costs, and promoting competition so that consumers would see the savings.

Energy is where the IMF expected the next change. Its December 2025 statement described a reform aiming to generate 30% of electricity from renewables by 2030, largely through power purchase agreements with private partners, which it said could lower the cost and improve the reliability of power and the finances of Bahamas Power and Light. The Wikipedia country article gives the government's plan as solar at 30% of energy production by 2033.

Why the Bahamian dollar is worth one US dollar

The Bahamian dollar is pegged one to one to the United States dollar, and American currency is accepted throughout the islands. The Central Bank of the Bahamas was established in 1974. The islands earn almost all their foreign exchange from tourism and financial services, by the Wikipedia economy article's account, while importing most of what they use, and the IMF's 2026 appraisal asked for a lower ceiling on central bank advances to the government to support the peg.

The IMF's December 2025 statement credited the Sand Dollar, together with agency banking and digital payments, with extending financial services to underserved communities. The Central Bank has consulted on agency banking, which would let licensed non-bank providers serve customers on behalf of banks and credit unions, provided they can handle the Sand Dollar.

Disaster risk is now written into the public finances. A Comprehensive Financial Strategy for Disaster Risk Management adopted in July 2025 set up layers of retained and transferred risk worth nearly 2% of GDP, and the Inter-American Development Bank approved a loan of $160 million to build the capacity of the Disaster Risk Management Authority.