By NEIL HARTNELL
Tribune Business Editor
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.”