By NEIL HARTNELL
Tribune Business Editor
An ex-Cabinet minister yesterday urged the Bahamas to move rapidly in rescuing its financial services industry, which he warned was “under tremendous strain”.
Ryan Pinder, former minister of financial services, told Parliament that if the Bahamas failed to develop a viable model for the sector’s growth, it would result in a “failed country” and middle class.
The Graham, Thompson & Co attorney and partner used his 2016-2017 Budget debate contribution to point out that the Bahamas’ former “value proposition” of secrecy and tax avoidance had been eroded by international regulatory changes.
With tax transparency, and the upcoming automatic exchange of information, set to further transform the way that the Bahamas and other international financial centres (IFCs) do business, Mr Pinder reiterated his previous call for this nation to build a new competitive advantage based on residency.
By attracting high net worth individuals to use the Bahamas as their primary domicile, the Elizabeth MP said they would escape the ‘tax net’ in their home countries via legitimate, compliant means.
The Bahamas, Mr Pinder suggested, should prove its clients’ compliance by issuing them with a Tax Residency Certificate in return for a modest annual contribution to the Public Treasury.
Apart from boosting the Government’s revenues, Mr Pinder said such a compliant business model would attract wealthy individuals and their families to domicile their assets in the Bahamas.
Not only would these be managed by the Bahamian financial services industry, he added, but they might ultimately one day be invested in the local economy, creating jobs and investments.
Emphasising just why the financial services industry needed to be saved, Mr Pinder said it had created more Bahamian managers, and “been [more] responsible for broadening the middle class than any other industry”.
He added that it had also fostered entrepreneurial and ownership opportunities for Bahamians, with the sector’s workforce featuring a majority 80 per cent local component. Half the senior executives are also Bahamian.
“We have to preserve and advance this industry in the Bahamas for the economic viability of our country,” Mr Pinder said. “A failed financial services industry will quickly result in a failed Bahamian economy, which will result in a failed country.
“Today, we are experiencing a variety of international initiatives that are presenting serious and, some believe, insurmountable obstacles to the viability of our financial services sector. Things are not good in the industry.... We are under tremendous strain, this is true. Some see no way out.”
Mr Pinder thus became one of the first politicians to ‘tell it as it is’ with regard to the Bahamian financial services industry, and he was quick to criticise successive governments for failing to realise the sector’s importance and respond accordingly.
“In my opinion, Governments have had too much focus on foreign direct investment and tourism at the expense of properly developing the genesis of the middle class Bahamian, and current opportunity for Bahamian entrepreneurial ventures, the financial services industry,” he argued.
“Greater understanding, and greater focus, is required at the policy levels as well as throughout the bureaucracy of government......
“It is not only my belief, but also those throughout industry, that Government must be more focused and more responsive to, and demonstrative of its stated commitment to the future viability of the industry and its value propositions. This is a current issue that requires current action.”
Mr Pinder warned that the continuing regulatory and tax-related initiatives being driven by the G-20/G-7 and its variety of supporting fora would impose “monstrous” supervisory and compliance requirements on nations such as the Bahamas.
Yet, with IFCs having little choice but to comply with new global standards, Mr Pinder called for the Bahamas to build a “new value proposition” that was based on residency.
By domiciling in the Bahamas as their primary residence, the former minister said high net worth individuals would be able to legitimately escape the ‘high tax’ regimes in their home countries.
While this might give the Bahamas a competitive advantage, Mr Pinder warned that too exploit it, this nation would have to become far more welcoming - not to mention efficient, transparent and open - with its Immigration and residency policies and processing.
“We are woefully inefficient in processing these valid applications for permanent residence,” he said. “We have developed a negative reputation in the international community because of our inefficiencies and lack of transparency in the process.
“We also have no process, certificate or designation of being a tax resident of the Bahamas. This is also costing us business in the international community. In the industry, there is a trend of attracting higher net worth clients, with more assets, even if it means fewer clients in total. The difficulties just described are imposing significant challenges on the industry and redefining our new value proposition.”
Mr Pinder’s concerns prompted Hope Strachan, his successor as minister of financial services, to affirm that the Christie Cabinet was assessing various Immigration-related reform proposals to aid the financial services industry.
Still, Mr Pinder proposed a set policy for dealing with residency applications, including fixed timelines for responses and approvals. And he called for a tax residency programme to be implemented, arguing that the associated new revenue stream could help eliminate the fiscal deficit.
“What I propose is that if a client spends 90 days in the Bahamas, or can demonstrate objective evidence of closer connection and domicile to the Bahamas, and he pays a tax, let’s say $20,000 per year, then the Government of the Bahamas issues a tax certificate to the client demonstrating tax residence in the Bahamas,” Mr Pinder said.
“If we assume just 1,000 new tax certificates each year, that is $20 million of revenue the first year, $40 million the second year, $60 million the third year, etc.”
He added: “Residency for ultra high net worth clients should be our new value proposition, but can only be accomplished by way of predictability, certainty, transparency and progressive reforms.
“Done right, the Bahamas can be the Monaco of the Caribbean, the Monaco to the Latin American billionaires, a growing financial centre with a real value proposition to offer. A value proposition based on substance, not form. A value proposition that attracts clients we want, their assets, an investment in our country.
“I cannot emphasise enough the significance to the Bahamas and the industry of these reforms. They could literally be the lifeline to our industry, our middle class, to the economic stability of the country.”