By NEIL HARTNELL
Tribune Business Editor
A top accountant yesterday urged the Government to replace the “disastrous” Business Licence fee with a corporate income tax, warning that the current system discouraged growth and investment.
Raymond Winder, Deloitte & Touche (Bahamas) managing partner, told Tribune Business that the present Business Licence fee was inherently unfair, as it levied potentially huge sums against loss-making businesses.
As a tax on a company’s gross turnover, Mr Winder said annual Business Licence payments were often equivalent to a significant percentage of their net profits, eating up investment capital and discouraging job-creating expansion in the private sector.
“The Business Licence should be done away with, and they should have a corporate income tax,” Mr Winder told Tribune Business.
“I think the Business Licence is a disaster in terms of encouraging investment in this country. No company should be required to pay a significant percentage of their income in taxes if they’re generating a loss.”
The Government has increasingly seen Business Licence fees as a vital revenue source in the midst of its current fiscal crisis, and hiked the rates in the 2013-2014 Budget.
It is targeting a 30 per cent year-over-year increase in Business Licence fees, from $94.05 million to $122.366 million, an increase of $28.316 million.
This, though, has produced an outcry from many business community members, most recently Super Value owner Rupert Roberts.
He said his annual Business Licence fee has more than doubled, from $1.7 million to $3.8 million, and both Super Value and other food retailers will have to negotiate paying this in monthly instalments to the Government, as they can no longer afford one-time payments.
Mr Winder yesterday urged the Government to repeal the Business Licence Act and replace it with a corporate income tax, which would be levied as a percentage of a company’s net income - and not gross turnover.
Suggesting that such change be part of the Government’s wider fiscal reform programme, Mr Winder added that if it chose to stick with the existing Business Licence regime, payments should be capped at a percentage of net income.
“If the Government insists on having this Business Licence, it should consider a maximum amount on profit and a minimum amount on those companies generating losses,” he told Tribune Business.
“There ought to be a maximum amount that businesses are required to pay as a percentage of their net income. Forty per cent, 50 per cent of net income being paid out in taxes is not the kind of incentive to encourage businesses to continue in business.
“The Business Licence needs to be repealed to be more business friendly and encourage investment in business, not disincentivise investment in business,” Mr Winder added.
“Why should the Government want to tax a business that employs Bahamians and is generating a loss? There ought to be a cap, or we ought to move to a corporate income tax. Tax the profits instead of the revenue.”
Bahamian businesses have long complained that the Business Licence fee discriminates against companies such as food stores and gas stations, which are high volume/gross turnover, but low margin/net income. With the tax based on the gross, they often end up paying Business Licence fees greater than their annual profits.
The Government’s Value-Added Tax (VAT) White Paper, released in February 2013, initially too proposed scrapping the Business Licence fee and replacing it with a flat $100 annual levy on all businesses.
Yet the Christie administration’s thinking soon changed, and it has determined - for the moment at least - to keep the existing Business Licence regime and fee structure until it is certain VAT is generating the projected, and required, revenues.
Mr Winder told Tribune Business that corporate income tax rates in most countries did not exceed 20 per cent of a company’s annual net income.
He reiterated that the existing Business Licence fee structure was “bad for encouraging investment, and encouraging businesses to invest more in the economy.
“Every business from time to time goes through periods where it is unable to generate significant profits,” Mr Winder told Tribune Business.
“This is not good for encouraging new businesses, and encouraging those in business to make the investment in their business. The Business Licence is clearly not an incentive to invest.”