As published on accountancydaily.co, Thursday 25 August, 2022.
The Government’s approach to corporate income tax has been branded “misguided” by a prominent banker because the focus is largely on ensuring compliance with international demands.
Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business this nation should instead view corporate income tax possibilities as part of a wider reform package designed to make the Bahamian tax system more progressive where the burden falls most heavily on those who can afford to pay more.
“The position on the corporate tax is to me misguided because it’s suggesting that we will only implement that to be part of the global level playing field as opposed to looking at the total tax structure,” he argued, “to increase progressivity, to increase the equitable distribution, and increasingly target those who can most afford to pay as opposed to maintaining the regressive tax system and increasing the burden on those who have the least among us.”
Mr Bowe conceded that efforts to make the Bahamian tax system more progressive, where the sums people paid were linked to their income and wealth, and those who have the most pay the most, will “be very challenging as long as we have this consumption-based system” that relies heavily on VAT and import duties.
He spoke out after the Ministry of Finance paper, setting out the likely road map for increasing government revenues to the equivalent of 25 percent of Bahamian gross domestic product (GDP), said the net impact from introducing a corporate income tax will “likely be moderate” since it would have to replace the existing Business Licence fee that is levied on gross income.
Simon Wilson, the Ministry of Finance’s financial secretary, confirmed to this newspaper that the Deloitte & Touche accounting firm is continuing its study of the potential consequences from implementing a corporate income tax, as this would have implications for the financial services industry, investments, taxation and government revenues, and the entire private sector and economy.
The Bahamas is among the 133 nations that have agreed to implement a minimum global corporate tax rate of 15 percent, although its introduction has been pushed back by at least a year until 2024. “The goal is to ensure that the profits of multinational enterprises (MNEs) with global turnover exceeding 750m euros are subject to the minimum effective tax rate,” the Ministry of Finance paper confirmed.
“Such a measure could be a significant source of revenue for The Bahamas and could avoid corporate profits of MNEs in the country being taxed elsewhere. As well, not imposing a corporate income tax could pose reputational risks on the country that could jeopardise the buoyancy of future prospects for the economy...
“Needless to say, the imposition of a corporate income tax would necessitate a significant reform of Business Licence fees, very likely including the elimination of the turnover-based annual fee for the vast majority of Bahamian businesses. As such, the net annual revenue gain from a new corporate income tax would most certainly be significantly reduced.”
The Ministry of Finance paper added: “As a corporate income tax would be a complex undertaking with important economic and fiscal ramifications, the Government has engaged Deloitte to conduct an in-depth study of the impact of imposing the proposed global minimum corporate income tax in The Bahamas. A key element of the work will be developing a comprehensive understanding of the associated risks and potential impacts of various corporate tax policies.
“It is proposed that the work develop a risk assessment framework with a focus on the most vulnerable parts of the economy, and an explicit commentary on the potential risks and benefits. This exercise will be vital in determining the appropriate corporate tax policy for The Bahamas.
“At this stage, the Government is seeking to understand the potential risks and impacts rather than the approach to implementation of a corporate tax in The Bahamas. To this end, for each defined policy option, the study will provide only the headline points to consider in respect of possible implementation.”
Outlining the objectives of Deloitte & Touche’s work, the Ministry of Finance said it involved examining the policy options and “the most important design features” for a corporate income tax. It also involves an economic impact analysis “to understand the potential revenues that could be generated from a change in tax policy, the potential fiscal cost to local and international businesses, and the potential economic impact - employment, investment, output”.
The final element listed by the Ministry of Finance includes “a clear examination of the potential positive and negative outcomes across sectors of the economy, and for international companies operating in The Bahamas.
“In particular, the risk-assessment will consider the response of international organisations (the OECD, G-7) to the various policy options. This exercise will be vital in supporting the Government in determining the appropriate tax policy for The Bahamas due to the implications for direct investment into the country,” the ministry added.