By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamas is “too eagerly being led to the slaughter” over the introduction of corporate income tax, a former finance minister blasted yesterday.
James Smith, also a former Central Bank governor, told Tribune Business that the Government was “kowtowing” to the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) without fully understanding the potential consequences.
The now-CFAL chairman warned that the Bahamas would be “shooting ourselves in the foot” by implementing a corporate income tax because this would undermine its foreign direct investment competitiveness.
He added that the EU and OECD pressure driving this nation to adopt a corporate income tax, and avoid the latter’s ‘blacklist’, was occurring at a time when most countries - including the US - were either moving away from - or reducing - this type of taxation.
Arguing that the duo were seeking to erode Bahamian sovereignty, and this nation’s ability to determine the tax structure that best suits its interest, Mr Smith said adopting a corporate income tax would effectively force this nation to ‘go back on its word’ to investors already here.
“The Bahamas is too eager, and not just the Bahamas but other countries, which were never at the table to begin with and never invited to provide their recommendations,” said the finance minister in the 2002-2007 Christie administration. “They’re simply going along with being led to the slaughter.... It’s extra-territorial imposition from the outside, and a modern form of colonialism. The Government is kowtowing to it without looking at it properly and fully understanding it.
“We shouldn’t implement a corporate income tax because others say it’s the thing to do. We started off without a corporate income tax, and did quite well. I’m bewildered at how eagerly we’re bending over. They’re [the OECD and EU] looking after their interests, but no one is looking after our own.”
The Government has hailed last week’s signing of three commitments towards meeting the OECD’s automatic tax information exchange, tax transparency and anti-tax evasion/avoidance drive, stating it “will no longer be playing catch up” in complying with international regulatory initiatives.
K P Turnquest, the Deputy Prime Minister, was even quoted by a government press release as saying the Bahamas planned to become the “standard setter” in this area among international financial centres (IFCs).
However, Mr Smith’s comments reflect the significant unease among many Bahamians about how this nation is being forced to adopt changes that not only threaten to erode its sovereignty but could result in the complete overhaul of its economic and taxation structure. This is because the Bahamas is now effectively ‘sandwiched’ between the crosshairs of the EU’s ‘blacklisting’ offensive coupled with the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.
The Bahamas last week signalled its commitment to meet the ‘minimum standards’ of the BEPS inclusive framework, which requires this nation to adopt four of 15 ‘actions’ designed to prevent multinational companies legally avoiding their tax obligations.
One of these ‘actions’ the Bahamas has agreed to comply with is the prevention of so-called ‘harmful tax practices’. However, the absence of a Bahamian corporate income tax regime presents a major obstacle to achieving this, as the OECD considers a rate of between 0-10 per cent a ‘harmful tax practice’.
Compliance with BEPS, and the adoption of ‘fair taxation’ methods, are two of the three criteria being employed by the EU in determining which nations to ‘blacklist’, meaning that the Bahamas is effectively caught between it and the OECD.
The Prime Minister last week said the EU’s Code of Conduct group had already written to the Government expressing concern over the Bahamas’ lack of corporate income tax - a clear sign that this nation is being pushed to adopt such a levy.
Mr Smith yesterday argued that countries should be free to adopt the taxation structures that best meet their fiscal, social and welfare needs, not be bullied by the OECD into “a one-size fits all that doesn’t make sense”.
He added: “They gave us no choice to mitigate, to adjust our taxation system to our circumstances. It seems to me that the whole idea of taxation coming from various sources is to pay for expenditures incurred by the state. You don’t start by telling me: ‘Use this form of imposed taxation on companies’.”
With financial services business already “going back to developed countries” as a result of the OECD and EU efforts, Mr Smith said the Bahamas would have been better advised to form a group with fellow IFCs and negotiate in their collective interest with the two bodies.
He argued that nations were moving away from taxing investment and income, as highlighted by the US Congress’s ongoing efforts to cut corporate income tax rates from 35 per cent to 21 per cent, just as the Bahamas was being forced to introduce such a levy.
Mr Smith also warned that introducing a corporate income tax would undermine the Bahamas’ attraction to foreign direct investment (FDI), and effectively betray a promise made to investors already here that they would be safe from such a levy under the protection of this nation’s laws.
“The Bahamas, like in other developing countries, doesn’t have a convertible currency and depends on foreign direct investment (FDI),” he told Tribune Business. “Now you’re telling me to tax such investment by having a corporate income tax.
“You’re shooting yourself in the foot. We’re competing for FDI with the rest of the world, and you’re asking us to introduce that on them and locals when so far we’ve avoided doing that.
“We’re not doing this to bridge a deficit gap in the Bahamas; we’re being pushed to do this to comply with some external standard. We’re not really understanding the full implications of it. We can’t allow the whole fiscal structure to be rearranged from the outside without taking into account what is happening internally.”
Warning that the introduction of corporate income tax could effectively amount to a betrayal of existing investors, Mr Smith added: “The tragedy of it is that for many years we have invited foreign direct investment into the country with a certain expectation set in our laws.
“They have been here, and now we are turning around 180 degrees, and that in itself is something to beware. We have policies and programmes where we invite FDI, and have certain expectations that are put in our law, and you change the laws on them.
“In doing that, how can they trust we have a level playing field? They came here because they thought we were a sovereign country and that we could protect their rights under our laws.”
The prospect of a corporate income tax has divided many in the financial services, business and legal communities. Tanya McCartney, the Bahamas Financial Services Board’s (BFSB) chief executive and others, have argued that such a tax should be studied seriously for the Bahamas’ own sake, but only adopted if it made sense for the wider economy.
Some observers believe that many international clients will be prepared to pay a low rate corporate income tax. They see its introduction as paving the way for the Bahamas to enter into double tax and investment treaties, and attract more institutional business, while also helping to shed the ‘tax haven’ label.
Others, though, argue that such a tax would be problematic simply because Bahamian culture is not used to any form of income tax. While Business License fees could potentially be converted to an income tax, other concerns involve the impact on domestic Bahamian businesses and the fact it could drive away clients who came for the existing ‘no tax’ platform.
Mr Smith said forming alliances with other IFCs to resist the OECD/EU “would be the way to go rather than bend over and say: ‘Look how high I have jumped because you told me’”.
The Minnis administration, though, believes it has no choice but to comply given that a ‘blacklisting’ could cost the Bahamas further correspondent banking relationships and impact its ability to conduct international trade and commerce - the very foundation of its economic model.
Comments
birdiestrachan 6 years, 4 months ago
these FNM fellows do not know what they are doing. Mr. Smith is correct they are like :sheep lead to the slaughter and they opened not their mouth. The dumb and the dumber. and the dumbest is at the head.
Without vision the people perish, "Its the peoples time"
John 6 years, 4 months ago
One of the greatest disadvantages a country like the Bahamas has is because there such a great political divide in the country, there is little or no consultation or communication or cooperation over party lines. And because there is such a rapid turnover in government these foreign or international bodies have the advantage by coming in and forcing their (previously rejected) agendas on newly elected (and green) government. And rather than newly elected prime ministers, like Hubert Minnis, consult with the elder statesmen and former prime members ministers, like the Hubert Ingraham and the Perry Christie’s, they choose to go it alone and deliver the country ‘up for the slaughter.’ Prematurely at that. These people have agendas set for hundreds of years. Wicked agendas at that, that are passed on from generation to generation. Take for example, one country’s intent was to control the food and energy of as many countries as possible. So they came through the Caribbean and destroyed as many farms as possible. They promoted hotel work as opposed to farm labor. Now today, some forty years later, many Caribbean countries have to rely solely on that country for food supplies. And despite several Caribbean country discovering oil or having access to cleaner and more affordable forms of energy they are almost compelled to have a foreign country manage and control their sources of energy. There were fresh fruit and vegetables market on Potters Cay. Then a company came in to fix and repair the Paradise Island bridge and this market disappeared. So now these organizations want to force the government to tax the Bahamians citizens even more. Then the loan the country even more money and more and more of th country’s revenue has to go to servicing these loans. So the country and its citizens grow poorer and poorer trying to cater to the whims and wishes of these fat cats.
banker 6 years, 4 months ago
Why should there be consultations? Christie ran the country into the ground. He knows nothing. The same goes for James Smith. He and Wendy Craigg were the most ineffectual governors of the central bank ever in the history of the Bahamas. They were both partisan flunkies who abandoned their duty towards monetary (and fiscal) fiduciary responsibilities to the country and its people. Why this is even in a "newspaper" is beyond me. It is fake news by an economically-challenged PLP flunky.
John 6 years, 4 months ago
When a judges hears a trial he/she hears arguments from both the offence and prosecution before an opinion is formed. And because Perry Christie and others, whom you have named, may have performed poorly in their various positions, in your opinion, it must not mean they cannot be privy to information that can help direct and guide current or even future governments. After all hindsight is often 20/20 vision
banker 6 years, 4 months ago
Suppose that you ran a store. Then you hired a thug to "give him a chance" and let him be a clerk in the store. Suppose that he insulted all of the shoppers, didn't rush to help them, was indifferent to their questions, and had a poor attitude when speaking to you. Then you fire him and hire another newbie. Would you send the new person to the fired guy to plumb his mind about what he knows about customer service? Your analogy is the same with politicians.
The Bahamas is on the road to becoming a failed state. The two previous living Prime Ministers have nothing to offer. Do you remember what was magically written on wall in the Book of Daniel --- "You were weighed in the scales and found wanting. The days of your kingdom are coming to an end". (Mene mene tekel upharsin). So be it with the previous administrations.
And yes I know an atheist (me) is quoting scripture, but that is how you make Christians understand your point.
Dawes 6 years, 4 months ago
It was Bahamians who destroyed the farms over here, farms in Eleuthera destroyed in the 60's and 70's. In the 80's the US helped us to set up a farm in Andros and we destroyed it. We can't continue to blame these outside influences when it is us who have done it to ourselfs.
John 6 years, 4 months ago
Then what about the farms in Abaco?
Dawes 6 years, 4 months ago
Do you mean the ones that the canker disease destroyed. The same disease that hit numerous citrus producers the world over?
Craig 6 years, 4 months ago
In my industry with low profit margins, I would prefer corporate income tax over business license any day. In fact I welcome it. I estimate that we now effectively pay over 25% in income tax when business license fees are compared to profits and business license tax must be paid whether profits are made or not. I suspect those business people in higher margine industries are the biggest opponents!
DEDDIE 6 years, 4 months ago
For if either of them falls, the one will lift up his companion. But woe to the one who falls when there is not another to lift him up. The Bahamas is been squeeze because it never saw the value in alliances.When things are going good the natural human tendency is to shun alliances. But alliances are like insurance policies, YOU WILL ONE DAY NEED THEM.
John 6 years, 4 months ago
Actually the Bahamas finds itself in a position Haiti was in a century ago. It has the potential to become one of the most prosperous little country on earth. But now it is being blocked and sanctioned from every avenue. Every effort is being made to prevent the wealth from reaching and benefiting the Bahamian people (guess the reason). And while the EU is placing so much focus on The Bahamas, there are member nations involved in fraud scandals involving funds multiple times the value of the country’s GDP.
John 6 years, 4 months ago
Who is Melechon?
John 6 years, 4 months ago
Italians Charged in EU Fraud Scandal | Europe | DW | 28.03.2007 www.dw.com/en/italians-charged-in-eu-... Mar 28, 2007 - Europe. Italians Charged in EU Fraud Scandal. Three Italian nationals have been charged and are being held in custody in Brussels as part of a corruption probe into tenders ... Prosecutors in Munich have arrested a top management board member at Siemens in an investigation into alleged bribery. Corruption in the European Union: Scandals in Banking, Fraud and ... https://www.globalresearch.ca/corrupt...">https://www.globalresearch.ca/corrupt... Sep 4, 2016 - EU corruption has historically taken a wide range of forms demonstrated so vividly with successive scandals in banking, tax avoidance, a host of malpractice and fraud ... Cecelia Malmstrom, the European Commissioner for Trade and lead negotiator in the biggest trade deal in the history of humanity TTIP. The 5 Biggest Corporate Scandals of 2015 | Fortune fortune.com › Leadership › Best of the Year in Business Dec 27, 2015 - No list of corporate screw-ups would be complete without a good old-fashioned accounting scandal. In September, electronics conglomerate Toshiba admitted that it had overstated its earnings by nearly $2 billion over seven years, more than four times its initial estimate in April. CEO and President Hisao ... The Brussels Times - 5 of the largest EU scandals in our history www.brusselstimes.com/magazine2/2907/... May 1, 2015 - The recent "cash for questions" furore in the UK has once again put the spotlight on cases of alleged fraud at the highest levels of the political eli... EU tax scandal: Investigators open fraud probe into top ... - Daily Express https://www.express.co.uk">https://www.express.co.uk › News › Politics Jun 7, 2017 - FRAUD investigators are probing a number of high-ranking EU officials over allegations that they used offshore bank accounts to avoid paying tax, it emerged today. Our Take On The 10 Biggest Frauds In Recent U.S. History - Forbes https://www.forbes.com/.../our-take-o...">https://www.forbes.com/.../our-take-o... We looked at investor losses, Securities & Exchange Commission and Department of Justice enforcement actions and private lawsuits, as well as societal impact, to come up with our picks for the ten biggest frauds in the U.S. of the past quarter century. Egg contamination scandal widens as 15 EU states, Switzerland and ... https://www.theguardian.com">https://www.theguardian.com › World › Food safety
John 6 years, 4 months ago
continued:Aug 11, 2017 - A spokeswoman in Brussels said the situation was “evolving by the day”, as criminal investigators continued to hold two men arrested on Thursday for fraud following a series of raids in Belgium and the Netherlands. The EU countries known to be affected by the scandal are Belgium, the Netherlands, ... The 7 Biggest Financial Scandals of All-Time - Wall Street Survivor Blog blog.wallstreetsurvivor.com › Finance Feb 21, 2017 - What's the biggest financial scandal of all-time? ... finacial The biggest bankruptcy case in European history belongs to Parmalat. ... In what is one of the largest accounting fraud scandals of all time, Enron would go bust in 2001 after it was found to be inflating its earnings by several hundred million dollars. Corruption in the European Union | The European Financial Review ... www.europeanfinancialreview.com/?p=7757 EU corruption has historically taken a wide range of forms demonstrated so vividly with successive scandals in banking, tax avoidance, a host of malpractice and fraud cases to secretive TTIP negotiations that circumvents public interest needs. The result is that public support for the EU has been seriously undermined with ... Fraud behind tainted-eggs scandal began in 2016: EU - Medical Xpress https://medicalxpress.com">https://medicalxpress.com › Health Aug 31, 2017 - The fraud that caused the contamination of millions of eggs with the insecticide fipronil began in September 2016 and has now affected 34 countries, the EU said on Thursday.
John 6 years, 4 months ago
Why is The EU so corrupt? . "ARTICLE
l Campaigners want to know why Brussels bureaucrats are refusing to release a report on fighting corruption.
EU chiefs had promised to report every two years on how well countries in the bloc were battling graft.
But, after its first report in 2014, there has been nothing.
There had been an update scheduled for 2016, but this was scrapped suddenly in January this year by European Commission vice president Frans Timmermans.
Transparency campaigners say it was such a last-minute move the data would have already have been compiled.
They have asked for the reports via freedom of information requests but the European Commission has so far refused their demands, saying it would have a chilling effect on people talking to them about corruption.
“The whole point of these reports [in the first place] was that they are going to be made public, so it doesn’t make sense for them to say that these people didn’t know what they would say would be made public,” said Andreas Pavlou, a campaigner and researcher at Access Info.
“Supposedly this was information that was going to be published anyway so to suddenly say they are not going to raises questions about why and how and what information they do have.
“In Europe there are huge questions around the rule of law and whether there is greater corruption than there was before.
“So these reports would be hugely useful and hugely important for civil society.
“The massive effort to collect comparative information about the state of anti-corruption measures in 28 EU member states has been thrown in the bin by the European Commission, having abruptly decided not to publish them, and refusing to publish them following requests for access. Given the present-day challenges to European democracies, the Commission’s decision to shelve the publishing of these anti-corruption reports makes it ever more difficult for citizens and civil society to hold public officials to account and tackle corruption.” hree years ago, the EC said corruption cost the European economy 120 billion euros annually and more should be done to “punish and prevent it”.
A number of corruption scandals have erupted in Europe so far this year, most notably in Romania and French presidential candidate Francois Fillon.
A spokeswoman for the European Commission said: “When we took the decision on the way forward at the end of 2016 there was no draft report, nor anything that resembled a draft report. Our work on anti-corruption did however continue. The Commission decided to mainstream its anti-corruption policies in the European Semester and embed it in the DNA of its economic policy dialogue between the Member States and EU institutions. All preparatory work has fed into that process.”
John 6 years, 4 months ago
So what are the benefits of rushing to become a part of this cesspool
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