The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian financial services entrepreneur yesterday praised the IMF’s income tax recommendation as “spot on”, but warned: “Don’t wait for outsiders to tell us what to do.”

Paul Moss, principal of Dominion Management Services, told Tribune Business that the Fund’s ‘low rate income tax’ proposal mirrored his calls for reforms essential to preserving the financial services industry.

Reiterating his belief that the Bahamas needs to adopt a ‘low tax’ model, Mr Moss said the Bahamas needed to enact taxation reform “for ourselves rather than wait until we’re forced to do it”.

He acknowledged the IMF’s “poor track record” in advising small and low income economies, but suggested their proposal had merits - with local reaction to-date betraying a “lack of understanding” of the Bahamas’ need to reform.

“I think that they’re spot on with their recommendation,” Mr Moss told Tribune Business of the IMF. “I just feel that based on some of the comments I’ve read that some people don’t understand the critical nature of where the Bahamas is with respect to its ‘tax haven’ status as opposed to tax competition.

“Tax competition is the way of the future; that’s the way of the future. What I fear is that when a jurisdiction like Cayman, Bermuda and others decides that is the route they’re going to go, business is going to flock to those jurisdictions because that is what the world is going towards.”

The reaction to the IMF’s VAT proposal has been overwhelmingly negative, with the private sector demanding that the Government put its own ‘fiscal house’ in order first before imposing new or increased taxes on the back of already over-burdened businesses and households.

The IMF had suggested a ‘low-rate income tax’ as revenue replacement for reduced import tariffs, which have to be eliminated or slashed as a result of the Bahamas’ international trade commitments to the European Union (EU) and, possibly, the World Trade Organisation (WTO).

It argued that its proposal would also “make the tax system more progressive and help protect infrastructure and social spending”.

Mr Moss, though, described the IMF’s proposal as in line with his calls for the Bahamas to implement a ‘low rate’ corporate income tax as a means of reviving the financial services industry.

He has consistently argued that the current ‘no tax’ platform, with income, capital gains and inheritance taxes all absent, prevents the Bahamas from entering into ‘double taxation agreements’ that could attract new business to this jurisdiction.

Such ‘double tax treaties’ would enable the profits of Bahamas-based international businesses to be taxed at a lower rate here, rather than at a higher rate back home, when these monies are repatriated - creating significant tax savings and benefits.

Mr Moss has also argued that a ‘low rate’ corporate income tax would enable the Bahamas to shed the ‘tax haven’ label, and meet international regulatory demands for greater transparency.

“There are many people who want to be in this country,” he told Tribune Business yesterday, “but they can’t because there’s no way for them to benefit from double tax arrangements, or relocate their business to the Bahamas because of the description that we’re a tax haven.

“I introduced Fred Mitchell (former foreign affairs minister), while in the Middle East, to a few Indian clients who wanted to do business in the Bahamas but told him straight up they couldn’t because we didn’t have any double taxation agreements, and because of the ‘no tax’ position the Bahamas holds.”

The Government is currently assessing a Bahamas Financial Services Board (BFSB)-commissioned study by Deloitte’s UK arm, which analyses whether the current tax structure is suitable to maintain the sector’s competitiveness moving forward.

Mr Moss said those advising the Government against an income tax were the ones benefiting most from the current structure, but he agreed that the IMF’s advice needed to be treated with caution.

“I have to say this,” he told Tribune Business. “The IMF has a track record that is not good when it comes to advice, and giving advice to countries. We should do it for ourselves. We should not wait until we are forced to do certain things.

“That’s been our modus operandi. We tend to wait until we’re pushed. But the windfall is far greater than maintaining the status quo. I just hope we get the right people to look at this thing, and go forward.

“We know the way we raise taxes now are not sufficient to run this archipelago, and these hurricanes popping up all over the place are a demonstration of that. VAT at 7.5 per cent is not going to cut it, and it has to be supplemented with income tax,” Mr Moss continued.

“That will blow our minds in terms of what we will raise. There are people raising the boogeyman that there will be a flight of businesses from this country [with an income tax], but that’s not going to fly.”

Urging the Bahamas to “take the lead, and be the first to do it”, Mr Moss suggested that the Bahamas introduce a ‘low rate’ corporate tax for international and domestic businesses first, before extending it to individual Bahamians.

“If we were to enact legislation today saying that IBCs wanting to pay can pay income tax, I’m sure many will want to pay it as the beneficial owners can demonstrate they are doing tax compliant business in the Bahamas,” he told Tribune Business.

“We always have to wait for outsiders to tell us what to do in our own country.”