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Licence Fee Rises 'Will Not Break' Private Sector

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James Smith

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The “marginal” Business Licence fee increases are “unlikely to be the proverbial straw that breaks the camel’s back”, a former finance minister said yesterday, praising the 2013-2014 Budget for “hitting more than the right notes”.

James Smith, also an ex-Central Bank of the Bahamas governor, told Tribune Business he “doubted very seriously” that the Budget’s Business Licence fee rises and other tax increases were enough to dampen economic growth.

Pointing out that Bahamas-based companies generating more than $100 million in annual sales would see just a one percentage point increase in their Business Licence rates, Mr Smith said their tax burden was relatively light compared to many other countries.

And the CFAL chairman added that some businesses were likely to engage in ‘creative accounting’ in a bid to minimise their Business Licence fee, and overall tax, burden.

Numerous high sales volume companies, such as Super Value and Cable Bahamas, will see their Business Licence fees more than double - rising by over 130 per cent in these two cases - as a result of the rate rising from 0.75 per cent to 1.75 per cent.

Many observers have suggested that these increases, and the application of new and other tax increases, will retard private sector investment and business expansion, resulting in limited new job creation and Bahamian economic growth under-shooting the 2.7 per cent forecast.

However, Mr Smith yesterday suggested these fears were overblown. “I doubt it very seriously,” he replied, when asked whether the Budget’s impact would be to dislocate economic growth.

Focusing on the highest Business Licence fee bracket, Mr Smith told Tribune Business: “How many [businesses] will find themselves in difficulty in having to pay $1 million more in taxes, bearing in mind that in other countries the tax is applied to net income, and will be much larger.”

Implying that large Bahamas-based businesses are facing a less onerous tax burden, due to the Business Licence fee being levied on the top, and not the bottom, line, the former finance minister said opportunities abounded for companies to legally minimise their taxes.

“No one likes to pay taxes, I do understand that,” he told Tribune Business, “but a marginal increase in Business Licences is unlikely to be the proverbial straw for any commercial camel.

“You’re likely to see some very funny accounting. That’s the part of the story we tend not to look into,” he added.

“The gross can be reported in many ways, since there are no regulations setting out how to report gross income, and it will be perfectly legal.”

Well-informed Tribune Business sources said that based on information gleaned from highly-placed government officials, the Business Licence fee increases were targeted, in particular, at high turnover companies such as the oil sector and the Bahamas Telecommunications Company (BTC).

They also suggested that it was the total tax burden many Bahamian businesses now faced, as opposed to the few increases contained in the Budget, that was the real issue.

Still, Mr Smith praised the 2013-2014 Budget for tackling the most pressing issue facing the Bahamas - its “unsustainable” $500 million annual fiscal deficits, and a national debt approaching $5.5 billion.

“In my view, the really number one issue would have been changing the trajectory of the debt, to at least stabilise it and bring it down,” the CFAL chairman said.

“We all agreed it was unsustainable, and the Bahamas was headed down a very slippery slope.”

The Government had “crafted a Budget that, at least on the surface, seemingly” addressed the twin deficit/debt issues, and Mr Smith added: “It’s a recognition, locally and internationally, that we can’t keep the spigot open.

“We cut it here and it goes back in the other direction, reducing the deficit and stopping the rise in the debt.”

Arguing that the Government’s combination of spending controls, better revenue enforcement/administration and tax/fee increases was the correct way to go, he told Tribune Business: “That hits more than just the right notes; it’s the proper policy response to these circumstances.

“It’s really now a question of delivering on the package, and a bit of luck. It can only be done with a bit of visitor growth - visitor arrivals and spending.”

Mr Smith also praised the Christie administration for resisting the temptation to open the spending tap further in a bid to deliver on its extensive 2012 general election promises.

“My fear would have been a government coming into office in its first 18 months, having made any number of promises, might have felt obliged to move quickly to make good on them, and if that happened it would have worsened the situation,” he told Tribune Business.

“In light of the criticism for not doing everything promised, that in and of itself shows a willingness to stop and take a breather, and realise the greater good is served by prudent economic policies.”

Comments

banker 6 years, 11 months ago

Sadly Mr. Smith's remarks show that he is full of theory and short of practicality. But what can you expect from a biased PLP mouthpiece? The latest budget is the most ruinous the country has ever seen for most businesses. Automobile dealers and food stores will be hardest hit. Transportation and Food are sectors that will affect the quality of Life of Bahamians that is already deteriorating. Mr. Smith should get out in the real world, and really talk to businessmen before he pontificates with his political biases.

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B_I_D___ 6 years, 11 months ago

The fee is not going to break us as a business, but it may break the consumer, we will add the fee into our cost and markup, and will be forced to sell at a higher price to the supermarkets. The supermarket in turn will add their markup, which will likely be a higher mark up as well considering their increased fees, so there is a snowball effect down the line to the person that picks up that product from the store shelf. THAT'S going to be the proverbial straw for some INDIVIDUALS who are on the edge right now of breaking even.

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hj 6 years, 11 months ago

The latest fees along with the upcoming VAT next year will certainly hit the average consumer. Foodstores will simply pass the costs to the shoppers,making the cost of living even higher. Ironically,the lower to middle income families who would have voted PLP in the last election,will be the ones that will be hit the hardest. Enjoy it.

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positiveinput 6 years, 11 months ago

Whether one voted or never voted before, we all will feel the effect from a decision as such. Rather than increasing taxes that in return will result in the consumer ending up with the final load, what is needed is the government to create new profit making work. Work that is, not jobs. As it stands today, each year schools are releasing individuals into the work world. These persons are meeting up with others completing college or those whom never found a job from the previous year not to mention those whom were laid off. Unless big investors intend to have projects such as Bahamar ready for operation each year to accommodate mass hiring, existing employers could never take on the percentage of unemployed persons looking for a job.

If the government was to say invest in a locally own amusement park, the facility itself would make money (a profit) in return the jobs that would be made available has its own source of funding for payroll/maintainance. Profit making work is needed - creating new jobs - reducing unemployment - raising comsumer spending - reducing cost of living.

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