By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The private sector yesterday expressed hope that the 25 basis point reduction in the Business License fee rate marked the start of broader talks on the “best form of taxation” in the Bahamas.
Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, said the slash to 1.25 per cent was “not comprehensive enough” as the Business License fee’s structure still meant companies could be “taxed into a loss”.
“No matter what the fee is, it’s being paid on gross revenue,” he explained. “A business on the borderline of profit or loss could be taxed into losses or further losses.
“It’s still not a tenable situation, particularly for the long-term. Hopefully this is the start of a productive debate on the numbers.”
Edison Sumner, the Chamber’s chief executive, told Tribune Business that Business License fees needed to be examined more “holistically” than just a rate cut, and assessed as part of the Bahamas’ overall taxation.
While welcoming the rate cut from 1.5 per cent, he disclosed that a ‘Task Force’ will likely soon be created to assess “the best form of taxation for businesses in this country and the environment in which they operate”.
Disclosing that the Chamber met the Government at the weekend to go through its 2017-2018 Budget plans and provide feedback, Mr Sumner said of the cut: “It’s an initiative that’s going in the right direction.
“The reduction, even though it’s a small reduction, is a reduction nonetheless, and it helps to reduce the cost of operations for businesses. We’d like to see some reform of the entire Business License regime, where the Business License fee is eliminated or the fees capped.”
Mr Sumner conceded, though, that eliminating Business License fees would require the Bahamas to replace a revenue source that is projected to generate $150 million for the Government in 2017-2018 - an increase of $3 million over the prior year.
He also acknowledged that the impact of a 0.25 percentage point rate cut was unlikely to be much felt by small and medium-sized enterprises (SMEs), given that the savings involved were likely to be relatively low because turnover - also on the low side - is the basis upon which Business Licenses are calculated.
“It’s going to have a greater impact on those larger companies whose turnovers are well into the tens of millions and hundreds of millions of dollars,” the Chamber’s chief executive told Tribune Business.
“A small percentage decrease in the Business License could be very significant for these very large companies. It may not be felt as much for the smaller companies, but for the larger companies they’re going to see an appreciable decrease in Business License fees. Those who have much larger turnovers will benefit the most as they’re dealing with much larger sums.”
Mr Sumner said other incentives were required to improve the ease, and reduce the cost, of doing business for SMEs, “opening the doors to allow them to become more profitable”.
He added: “The general sentiment is that we’d like to review this on a continual basis, review the Business License infrastructure, what the model will be going forward.
“We believe the Government made the right decision to reduce the Business License fee, but we have to look at this holistically and see what is the best form of taxation for business in the country and the environment in which they operate.
“We’ve got to look at the entire tax base and infrastructure further to determine what’s the best form of taxation,” Mr Sumner continued, “and what’s most conducive to the business environment going forward.
“You’ll probably see a Task Force established going forward to look at those points.”
Mr Sumner said such a body would include representatives from the Chamber, private sector and government in a public-private partnership (PPP) type arrangement, with the organisation ultimately submitting recommendations to the Government on the best options for comprehensive tax reform.
The private sector has long argued that Business License fees represent one of the most inequitable and regressive forms of Bahamian taxation, given that they are calculated as a percentage of gross turnover rather than profits.
This has resulted in many companies paying more in Business Licence fees than they earn in annual profits. And it has resulted in high turnover, low profit margin businesses such as food stores and gas stations, plus those impacted by price controls, like auto dealers, paying considerably more than low volume, high profit margin companies.
Other amendments to the Business License Act that were unveiled as part of yesterday’s Budget debate were designed to bring it into line with VAT, with business groups now set to have fees levied on their combined - rather than individual - turnover.
The reforms also strengthen revenue collection by requiring that all VAT be paid before a Business License is granted, and allowing the Financial Secretary to “suspend, revoke, amend and cancel” a Business License where a company has breached an agreement to pay outstanding taxes.
The Government, meanwhile, moved to fulfill a deal agreed between the former Christie administration and Atlantis’s owner, Brookfield, that reduces the Business License rate for hotels with a $400 million per annum turnover from 1.25 per cent to 1 per cent - an incentive also likely to be ultimately granted to Baha Mar. A further reduction is to be given to the Paradise Island hotel next year.
The deal with Atlantis has also seen import tariffs on shrimp and salmon, of 10 per cent and 35 per cent, respectively, eliminated.
Comments
Economist 6 years, 10 months ago
So far so good. The Government seems to realize that the best way to get the economy going is to get the private sector back into better health and growing.
ohdrap4 6 years, 10 months ago
do the merchants pay business licence fee on VAT?
that is a double whammy.
John 6 years, 10 months ago
Since 2008 basically every single economy around the world has been crashed and sent into recession. And what was the consequences? Their financial status was downgraded, not unlike the Bahamas, and they were forced to borrow money and their borrowing was at higher rates, not unlike the Bahamas. People say that when America runs up more debt, all it needs to do is print more money to pay it off. But no it is not that simple. It is the Federal Reserve that prints the money and the Federal Reserve is not owned by the American government or the American people. The Reserve is owned by a group of private bankers and what they are doing when they print money is loaning the US money at a hefty interest rate. And like the Bahamas and other countries around the world, the US debt is growing by leaps and bounds. Now try wrapping your brain around this for a second: Why is more that 3/4 of the worlds countries in debt up to a level that they can barely afford and many will eventually default on this debt? Banks that loan to countries have a similar policy that consumer banks use. They focus more on your assets or net worth rather than your cash flow and ability to pay. And when the country defaults, its assets are seized. So as of now the people of the Bahamas and the United States and Greece and Venezuela and Brazil and many more countries are no longer working for themselves, but they are working for the banks, both locally and worldwide. This strategy is not new. They did it with Haiti. And that is how the United States came to own half of Mexico and parts of Cuba. And the same people go around the world a few years after they have crashed economies and buy up all the gold and trinkets for penn on the dollar. They trade paper for your gold. So the rich get rich and the poor continue to work for them.
Porcupine 6 years, 10 months ago
So John,
You are one of a only a handful who seem to be aware of what's going on. There is a playbook in this game. It has been well described by many thinkers. Unfortunately, to grasp what is going requires self education by spending a few minutes or hours a day reading and then understanding. Your last sentence, however, I disagree with. It is everybody else, not just the poor, who will continue to work for the rich, as time goes on. Working for the rich will be the only way to make a bit more money than the very poor. "Confessions of an Economic Hitman" by John Perkins helped open my eyes up to this reality many years ago. Nothing has changed. It is bad, and going to get worse.
DDK 6 years, 10 months ago
Last sentence of John's also correct. The middle class is also vanishing at an alarming rate. It competes with the 1% and must be eliminated. The only things the 1% have not factored in, are: 1) who will buy what if no-one has any purchasing power 2) if big military bombs everyone into oblivion and starvation those souls will not be around to purchase; and 3) if they destroy Mother Earth by ignoring the severe warming pattern and suck the guts out of Mother Earth for their precious oil and gas then what..........?
Porcupine 6 years, 10 months ago
Hey, Your last name isn't Perkins, is it?
banker 6 years, 10 months ago
Hilarious! LOL !
Porcupine 6 years, 10 months ago
Perhaps,
If the Bahamian government wants to enter into a discussion on the best methods of taxation for the country they would start including, and listening to, hear this Tribune 242, other educated and sensible people, besides the gurus such as Gordon Bowe, Edison Sumner, Robert Myers, John Rolle and others who have a one-sided business perspective of what is fair. Please note that our higher educational facilities that produce the world's financial "leaders" are all educated in the same way. The top business schools, think tanks and the IMF, IDB, World Bank and similar institutions are all funded by, surprise, business money. Think Rockefellers, Soros, Koch brothers, etc. They have made sure that our best and brightest were "educated" in the same way of thinking at places like Wharton, Chicago........ If these guys, yes mostly guys, really were so brilliant, would we honestly be in the situation we are in after so many years of following their advice. We, as in the world. They always claim that we are in the predicament we are in because we didn't follow their advice, but this is a lie. VAT is a regressive tax. Businesses love it, because they don't pay it. VAT is passed along to the working people and the poor. Yes, business is the base for government. However, our best and brightest have had all the other considerations "educated" out of their heads by these higher educational facilities. There is a danger to higher education. We are witnessing it in the world today by a tax structure that favors ONLY the rich. All statistics suggest that this trend of growing inequality is due to tax structures. The lie of the rich (business) being SO much more productive than the rest of us needs to be put to rest.
DDK 6 years, 10 months ago
Amen!
banker 6 years, 10 months ago
Interesting points of view here.
However, as an ex-wealth manager, I can categorically state that the rich class is changing as fast as the middle classes and poorer classes. I've seen concentrated wealth dissipated by death and inheritance, and yes the heirs are wealthy by any standard, they do not have the same economic clout and influence that the wealth accumulators had. The old adage is true: The first generation makes it, the second generation spends it and the third generation blows it. Statistics show that only about 5% of wealthy families’ assets were inherited. The vast majority – approximately 70% – was created in the current generation via business ownership. The remaining 25% of wealth was the result of high-income occupations, such as doctors, attorneys etc. The old rich class (the Firestones, the steel magnates etc) are dismayed at the much larger wealth of the new billionaires.
The current crop of tech billionaires made it themselves -- Musk, Zuckerberg, Thiel -- sure some of them came from high income families, but the wealth was all generated in this generation through business. This shows you the importance of business, and our ease of doing business treats business people poorly. It is totally asinine to pay for a business licence based on expected revenue. It is retrogressive and anti-business. A business licence should cost the same for everyone. That is how wealth is created.
And as for the shrinking middle class -- we are regressing away from the Industrial Revolution paradigm that created the middle class. Prior to the Industrial Revolution, in Britain for example, there was the wealthy elite and the masses. The American Exceptionalism was founded on everyone being an entrepreneur and at the time of the Revolution, the economy was fairly vibrant in the 13 colonies and hence the taxes levied on them. The entire world moves in cycles, and we will see the middle class shrink by a heck of a lot. We will see three classes of peoples -- the poor, the entrepreneurs and uber wealthy with just a smattering of middle class.
If want any hope for this country, we had better fix the business environment. It is pretty much the only resource that we can develop for our salvation as a nation. Fostering business is more important than levying tax on it.
proudloudandfnm 6 years, 10 months ago
Man I could use a 25% cut in my taxes...
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