• Bahamas urged to ‘get on front foot’ via own reforms
• Govt warned: ‘Make choices for the next generation’
• Banker argues taxation threat had never gone away
By NEIL HARTNELL
Tribune Business Editor
The Bahamas must seize “the bull by the horns” and implement progressive tax reforms to place it ahead of the drive for a global minimum corporate tax rate, a top banker urged yesterday.
Gowon Bowe, who headed the private sector’s Coalition for Responsible Taxation when VAT was introduced, told Tribune Business that this nation must “get on the front foot” and initiate its own adjustments rather than be forced on to the defensive by the G-20 nations and Organisation for Economic Co-Operation and Development (OECD).
Acknowledging that the introduction of corporate and/or personal income tax must be part of a comprehensive taxation reform, and only undertaken after careful study, he argued that The Bahamas can no longer shirk from overhauling what he described as “a regressive, faulty and inoperable” system in favour of more progressive options.
Criticising successive administrations for taking the safe, easy way out when it came to enacting major reforms, Mr Bowe said they too often showed “fear of political retribution” and ducked “making choices that will carry us through to the next generation”.
Asserting that The Bahamas should have realised that the OECD’s tax-related initiatives had never gone away, with the Bush and Trump administrations offering merely a “temporary reprieve”, the Fidelity Bank (Bahamas) chief said the present US government’s public stance showed it will be “very aggressive and direct” in making its global minimum corporate tax vision a reality.
Noting the continued G-20/OECD belief that their member nations are losing vast tax revenue sums to so-called “zero tax” countries such as The Bahamas and other international financial centres (IFCs), Mr Bowe told this newspaper: “While some may castigate me for it, I’ve long been a proponent of progressive taxation...
“The Bahamas needs to stop reacting to what is taking place globally, and take the bull by the horns and determine what the most appropriate and relevant tax system is for The Bahamas. If we do it properly, I think we can come to an accommodation that is globally acceptable and competitive.”
Urging The Bahamas to get out ahead of the global minimum corporate tax rate push, Mr Bowe said any reforms needed to ensure the government can continue to fund all the state’s functions and essential public services.
He added that previous legislative changes to meet the European Union’s (EU) demands for an end to preferential tax treatment for the economy’s international sector, and that all companies doing business from The Bahamas must be doing real business and have a physical presence (substance), provide a platform for a broader tax base that eliminates the need for tax rates of 30 percent or higher.
Calling on The Bahamas to introduce corporate income tax on its own before it is forced to do so, Mr Bowe told Tribune Business: “Let’s stop thinking how we appease the overlords of the OECD, and become overlords ourselves by determining what is most appropriate for us and using that in an advantageous manner to become competitive.
“We are right now always on the back foot and playing defence. If we get our tax system right for us, we can get on the front foot and play offence. We can have a tax system that is progressive, consistent with first world countries, competitive and demonstrates that it is not harmful because we are generating revenues that enable us to operate in a fiscally sustainable manner.”
Mr Bowe added that introducing a corporate income tax would enable The Bahamas to enter into double taxation agreements with other nations, whereby foreign companies based here would be taxed only by this nation and not by their home states as well.
“We don’t focus on the root that needs to be addressed,” he argued. “I think our regressive, faulty and inoperable tax system will always come under scrutiny. If we fix this we will be in a better position to promote ourselves as overlords competing in the same sphere with other nations but more aggressively and competitively with our tax system.”
Calling on The Bahamas to adopt a “David versus Goliath” mentality, Mr Bowe said it could “use the same strategy to our advantage in operating in their playing field”. However, he urged the Government and political elite to commit to reform before it is forced upon this nation.
“Don’t let it be lip service,” he warned. “If you’re going to do it, draw on what was done before and get to the point of execution not deliberation. I’m going to say, and will catch some flak for it, but we’ve had successive administrations who, when out of office, say what should have been done when they were in the seat.
“That demonstrates a fear of political retribution for doing the right thing while continuing to leave us in a regressive state. Make choices that carry is through to the next generation and beyond, and don’t make choices that will be detrimental to future generations.”
Mr Bowe spoke out after the newly-elected Biden administration last week threw its support behind the other G-20 nations and OECD, which is leading the push for a minimum global corporate tax rate.
It now appears inevitable - and only a matter of time - before a minimum global corporate income tax rate emerges, with corresponding pressure on all nations to conform, after the US government last week threw its support behind efforts to achieve a consensus on the issue. The International Monetary Fund (IMF) also backed the initiative.
The Biden administration’s move is a marked change from the stance taken by its Trump predecessor, which was more focused on allowing sovereign nations to set their own tax rates and opposed to European efforts to impose a so-called “digital tax” on US multinational giants such as Amazon, Google, Facebook and Apple.
However, the newly-elected Democratic government sees a global minimum corporate tax as critical to preventing such companies from minimising their tax burden via creative structures that shift profits and revenues to low-tax nations such as The Bahamas and other international financial centres (IFCs).
Its view, like that of the OECD and high-tax European nations such as France and Germany, is that a global minimum will prevent a so-called “race to the bottom” on tax rates. Pascal Saint-Amans, head of tax administration at the OECD, told the UK’s Guardian newspaper: “What the US has put on the table … [is saying] we want the rest of the world to follow, we kill tax havens. The game is over. Let’s move to a minimum agreed level.”
Janet Yellen, the US treasury secretary, last week pushed for a minimum global corporate tax rate of 21 percent - something that would represent a giant, potentially unsustainable leap for nations such as The Bahamas, which has no personal or corporate income tax.
Even World Bank executives suggested that 21 percent would be too much. And developing a global consensus on the issue may take time, even though the G-20 and OECD are pushing for one by summer 2021, given the disparities in existing rates. While the US presently enjoys a 21 percent corporate tax rate, the UK is at 19 percent and Ireland at just 12.5 percent, for example.