The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman yesterday questioned whether the Government was “trying to do away” with the limited liability protection afforded to most Bahamian companies through its 2016-2017 Budget changes.

K P Turnquest queried whether the Government could effectively “punish” a company for the sins of another by expanding the conditions for obtaining a Tax Compliance Certificate (TCC).

The Christie administration, in unveiling the 2016-2017 Budget, is proposing to “adjust the requirement of the Tax Compliance Certificate” to cover major shareholders in a company.

This means that all shareholders owning greater than 20 per cent of a firm’s equity will also need to be fully paid-up with their taxes for the company to obtain a TCC.

And, in a bid to ensure group affiliates and subsidiaries are also compliant, the proposed Financial Administration and Audit Act amendments also extend the TCC requirements to cover “companies with similar shareholders”.

The Government’s aim, in effectively ‘piercing the corporate veil’ to target any unpaid tax liabilities of major shareholders and affiliate companies, is to further tighten the tax compliance web to the point that it is almost self-enforcing.

Mr Turnquest, though, told Tribune Business that while he could understand the Government’s intentions, its methods threatened to further undermine the ‘ease of doing business’ in the Bahamas.

“In my mind, it seems to me that they’re trying to do away with limited liability,” he said of the TCC ‘adjustment’ proposal.

“While a company may be related, it and its activities really have nothing to do with a company on the other side. They’re two separate entities.”

Limited liability status gives legal protection to private company shareholders such that their financial liability for the firm’s debts and obligations is limited to the par (nominal) value of their fully paid-up shares. The company itself, as a legal entity, is liable for the rest.

The proposed Financial Administration and Audit Act changes seem to go further than this, though, by almost making companies responsible for the unpaid tax liabilities of their major shareholders and affiliates.

“I don’t know how that works,” Mr Turnquest added, “as most companies in the Bahamas are limited liability companies.

“If the Government wants to do this, they can make laws disqualifying people from acting as shareholders or directors when tax debts are owed.

“But they can’t pass laws punishing company ‘x’ for something company ‘y’ has done.”

Mr Turnquest told Tribune Business that several of the Government’s proposed reforms associated with the 2016-2017 Budget were “incredibly unfortunate”, given the additional financial and compliance burden they will impose on a struggling private sector.

He confirmed that his own businesses had recently received letters confirming that they would need to provide a TCC before the Government and its agencies would pay them for goods and services already provided.

“On the one hand they’re telling you to pay your tax bill, but on the other hand are holding the damn money you need to pay it,” the Opposition’s deputy leader told Tribune Business.

“Bahamians are owed money by the Government for months that they need to fund their regular operations, as well as to pay their required tax obligations.

“We’ve now got this rule where you’ve almost got to pay to get paid. It makes no sense. It’s crazy. It’s almost akin to double taxation. We are supposed to be making it easier for the facilitation and growth of business.”

Mr Turnquest said many Bahamian companies were already effectively “financing the Government” due to the 90-day turnaround time they were experiencing in getting paid.

The TCC requirement, he added, now threatened to create another cash flow impediment, especially if there were delays in obtaining the necessary certification that were no fault of the company’s.

“Those businesses, particularly on the margins, are going to find it difficult to get the cash flow to finance those carrying costs,” Mr Turnquest said.

“We ought to be in the business of facilitating doing business, and I don’t know if the Government makes the connection between cash flow and ability to continue in business and meet obligations when they fall due.”

When added to the Business Licence fee and Value-Added Tax (VAT), Mr Turnquest said the TCC requirement threatened further “disruption, and there was “a cost somebody has to bear”.

“Some businesses won’t be able to sustain it, particularly high volume, low margin businesses,” he added.