By NEIL HARTNELL
Tribune Business Editor
A former Cabinet minister yesterday accused the Davis administration of “burying their head in the sand” to The Bahamas’ “detriment” on global tax moves that threaten to impact this nation.
Kwasi Thompson, who held the minister of state for finance post until September 16, told the House of Assembly that the International Monetary Fund (IMF) report that discussed increasing the VAT rate to 15 percent had a much wider remit than just one narrow issue.
Suggesting that it had assessed the entire Bahamian taxation system, and not just VAT, he said the Government had ignored the implications of the G-20/OECD drive to implement a 15 percent minimum global corporate tax throughout the entire supplemental Budget debate.
Suggesting that this could provide the basis for The Bahamas to reform its corporate tax regime, such as doing away with the hated annual Business Licence fee in favour of a tax on private sector profits, Mr Thompson hinted that the window for this nation to be “proactive” was closing.
The Prime Minister used the IMF paper, Bahamas: Reviewing Tax Policy, to suggest that the Minnis administration planned to increase the VAT rate to 15 percent if it was re-elected. However, the now-Opposition is suggesting that the Government has taken the report out of context and misrepresented the contents.
Michael Pintard, the Free National Movement (FNM) leader, later read a passage from the IMF report which, he said, suggested that the 15 percent figure was suggested merely because it would align The Bahamas with other Caribbean nations. And Mr Thompson said the document was only a prelude to setting up wider public consultation on full-scale tax reform.
“Members would recall that, during the June 2021 Budget debates for the current fiscal year, both the then-Prime Minister and myself advised the Bahamian people that the administration recognised that, given the economic prospects of the country, that further tax reform was required,” Mr Thompson said.
“We stated then as we believe now that we needed to expand the tax base, and to do so in a way that we ensure greater equity and fairness in the tax system. At some point we will need to have a real conversation on tax reform. It cannot continue to be a political football.”
The IMF’s study was supposed to be followed by a so-called ‘White Paper’ on tax reform, Mr Thompson added, which would lay out the various tax reform options available to The Bahamas and trigger public consultation on the issue. That ‘White Paper’ was supposed to be issued before year-end 2021, although the election has now intervened.
“The report spoke to more than just a VAT increase,” the ex-minister said of the IMF’s advice, “but other forms of tax reform, in particular a matter that the Government has said little about. I don’t believe I heard a mention in this debate on the global minimum corporate tax issue.
“It’s a live issue, and requires us to be proactive in our approach. It provides us with an opportunity for real reform and to make our corporate system more equitable. It seems the Government is content to bury its head in the sand, which may be to our detriment.”
Obie Wilchcombe, the minster for social services and urban development, intervened to accuse Mr Thompson of engaging in an “underhand way to pat yourself on the back” for all that was done under the former administration.
Asserting that the Government will be discussing the G-20/OECD 15 percent minimum global corporate tax “in detail, and we’ll come up with a plan”, Mr Wilchcombe instead teased Mr Thompson to talk about what he termed a “wonderful tax amnesty” - a likely reference to the real property tax amnesty initiated under the Minnis administration.
That wrote off almost $62m in real property tax arrears in return for collecting $37.5m in unpaid bills, but Mr Thompson did not take the bait. Instead, he warned that the decision to make transhipment services VAT ‘exempt’ as opposed to ‘zero rated’ will make BORCO (Buckeye Bahamas) and Statoil less competitive and threaten their continued presence in this jurisdiction.
“Simply put, transhipment was changed from ‘exempt’ to ‘zero’ [rated],” Mr Thompson said of the previous administration’s actions. “This allowed these companies to claim the VAT back. In addition, they were not charging VAT on the services they provide. This I am advised made them more competitive.”
The Davis administration, though, is reverting back to ‘exempt’ status via the VAT amendments that were passed by the House of Assembly last night. “It is a charge they will now have to pass on their customers. These services are now VAT-able. Yes, we will get more VAT, but they must pass this on to their customers, which makes them uncompetitive,” the ex-Cabinet minister argued.
“One in particular states that this brings into question their future as a company.” Urging the Government to speak to the two companies, and come to “an amicable arrangement” that solves this situation, he added: “The companies are saying that to proceed in this manner, they are saying this makes them less competitive and puts the future of their business in jeopardy.
“We are saying: ‘Please, listen to them’. What we don’t want to happen is to [lose] companies like BORCO and Equinor. It would be disastrous for Grand Bahama. We don’t want to put them in a less competitive position.”
Ginger Moxey, minister of Grand Bahama, confirmed she had spoken with both BORCO and Equinor over their concerns related to the VAT reforms and their changed treatment. She added that these concerns had been relayed to the Ministry of Finance.
Simon Wilson, the Ministry of Finance’s financial secretary, previously said the proposed VAT reforms were designed to cap “huge” multi-million dollar refund liabilities owed by the Government to the two major transhipment providers.
He told Tribune Business that eliminating the VAT “zero rating” treatment for these entities would halt “distortion” of the tax system and prevent “future problems” for a cash-strapped Public Treasury by stopping any further growth of these refund liabilities.
The Government’s VAT refund-capping move involves the elimination of “zero rating” treatment for “services relating to the use of terminal or berthing facilities by commercial vessels in respect of goods” that have not been cleared for domestic consumption and “where the port of origin and the port of destination are not within the territory of The Bahamas”.
Similarly, “zero rating” treatment is also to be ended for “services in respect of the storage of goods, and any processes to optimise or maintain the integrity of those goods during storage”, where they have again not been cleared for domestic Bahamian consumption and the “port or origin and port of destination” are not in this nation.
Mr Wilson said the transhipment-related reforms were designed to bring The Bahamas back into line with international best practices on VAT treatment for the sector. He added that such services should be VAT ‘exempt’, meaning that while no tax is levied on the end user, companies in the sector are unable to recover what they have paid on their input costs.