The Tribune

The Government yesterday confirmed it is “modelling” the impact of potential tax reforms, while vehemently denying it is being forced into unwanted changes by Europe and the OECD.

K P Turnquest, the Deputy Prime Minister, slammed such suggestions by one of his finance minister predecessors as “disingenuous”, asserting that the Bahamas and other nations have “an inalienable right” to select the tax system that best suits their needs.

Responding to James Smith, who had criticised the Bahamas for being “too eagerly led to the slaughter” by the European Union (EU) and OECD over the introduction of a corporate income tax, Mr Turnquest urged him to instead provide constructive solutions to the debate.

The Deputy Prime Minister argued that the Bahamas had to understand that “the ball has moved” when it comes to tax transparency and information exchange, with the global crackdown on evasion and avoidance requiring it to adjust its business model to remain competitive.

Acknowledging the pressure for the Bahamas to adopt a corporate income tax, Mr Turnquest said “it doesn’t necessarily mean” the Minnis administration agreed with the EU and Organisation for Economic Co-Operation and Development (OECD), and was pushing back where it could.

The Deputy Prime Minister promised full consultation with the Bahamian people on any tax reform, adding that the Government was not one “that’s going to operate in the shadows and cloak and dagger people”.

Still, he agreed that the Bahamas faced a difficult balancing act in maintaining a tax system best suited to its needs while also meeting the international community’s demands.

“I think we have to recognise that the ball has moved, and the status quo is no longer acceptable. We cannot remain competitive in the way we have been,” Mr Turnquest told Tribune Business of the Bahamas’ current financial services business model.

Turning to Mr Smith’s concerns, he added: “He answered his own question with respect to global pressures, but he’s being disingenuous in saying we’re being pressured to change our tax structure.

“We are a sovereign nation and have an inalienable right to choose the tax system that is best suited to our needs and circumstances. That is what we have always done, and will continue to do. However, we now recognise we live in a global world.

“It is incumbent upon us to do the research, and ensure whatever adjustments we take on make sense, create efficiencies and we continue to be aligned with global trends and the external realities that confront us, while also being an appropriate fit for current industries and development of new ones.”

Mr Smith, also a former Central Bank governor, had earlier this week said the Bahamas was “kowtowing” to EU/OECD pressure without fully realising the consequences associated with introducing a corporate income tax.

He warned that the Bahamas would be “shooting ourselves in the foot” by implementing such a tax because this would undermine its foreign direct investment (FDI) competitiveness.

Mr Smith said the EU and OECD pressure was occurring at a time when most countries - including the US - were either moving away from, or reducing, corporate taxation.

Arguing that such reforms will 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 also effectively force this nation to ‘go back on its word’ to investors already here.

Mr Turnquest yesterday responded: “It’s unfortunate pundits take a negative approach to these developments rather than offer constructive advice, suggestions and input.

“They nay be able to participate in tax deliberations. I invite Mr Smith that if he has suggestions he should share them with us. I don’t claim to be an expert on everything. If he has suggestions on how to adjust the tax system, and he has the experience, come and make them. We’re open to them.”

The Deputy Prime Minister then confirmed that the Government was modelling numerous “what if” scenarios on tax reform, assessing the options and the impact on taxpayers, the Government’s fiscal position and the private sector/economy.

He emphasised that this was not just focusing on new and/or increased taxation, but also options for “eliminating” certain taxes to see how that might impact GDP growth and job creation.

“We have not been forced to take any particular action with respect to our tax structure and framework,” Mr Turnquest told Tribune Business. “However, we are being prudent and proactive.

“We are modelling to see the effect of any action or adjustment, and that is the prudent thing to do. We’re modelling a whole scenario of ‘what if’s’.”

He added that while the EU and OECD may “have a view” on the taxation system the Bahamas should employ, this did not translate into the Minnis administration automatically agreeing with them.

“It doesn’t necessarily mean we share their views,” Mr Turnquest said. “We certainly expressed our position as the Bahamas, and that we don’t believe we’re operating as a ‘tax haven’ or that we’re taking advantage of any situation.

“Our tax system just happens to be zero corporate tax. It does not mean we don’t charge tax, or have a ‘free for all’ system. Our system works for us. It’s very efficient for us as a consuming nation.

“But at some point it may make sense to adjust that model based on shifts in global trends and trade patterns.”

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.

However, Mr Turnquest yesterday reiterated: “I can only reemphasise that we are a sovereign nation, and that gives us an inalienable right to determine how we determine our tax system.

“No agency, external government or any external actor can force us to do anything. They can make it difficult for us to operate, but it’s a change we make.”

He then pledged: “I would say to the Bahamian people that if we make any changes to the tax system there will be full consultation, and they will have all the information presented to them in a very transparent manner so they can make a judgment as to what the benefits and impacts are.

“There will be full consultation with all stakeholders in society. We’re not a government that’s going to operate in the shadows and cloak and dagger people. It’s fundamental to our economy, fundamental to how the Government funds itself, and every Bahamian has a right to participate in that.”