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‘Tax system is broken’

photo

Gowon Bowe

• Top banker: ‘What we have not working’

• And failing to meet key taxation objectives

• But warns against ‘idle talk’ over reforms

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian taxation “system is broke” and in dire need of “comprehensive reform” to develop a suitable framework for the next 50 years, a top banker argued yesterday.

Gowon Bowe, who headed the private sector’s Coalition for Responsible Taxation when VAT was implemented in 2014, told Tribune Business that “what we have currently is not working” because none of the three core taxation-related objectives are being met.

Arguing that a nation’s tax system should be founded on principles of equity and fairness; enhancing economic competitiveness; and providing the government with sufficient funds to run the country, he argued that The Bahamas had been failing to meet any of these goals prior to COVID-19.

The now-Fidelity Bank (Bahamas) chief executive said the regressive nature of the current consumption-based structure; low GDP growth rates prior to the pandemic; and annual fiscal deficits since the nation became independent since 1973 should be sufficient to make the case for a renewed focus on reform.

However, he warned that the Bahamian people “cannot afford idle talk” sparked by the upcoming general election given the nature of what is at stake. Agreeing that income tax was “a viable” alternative, Mr Bowe said persons had to stop treating this option as “the boogeyman” and instead be guided by empirical analysis and studies as to whether this is the correct direction to take.

“I think the short answer is we certainly need a comprehensive review of taxation, and consideration for tax reform,” he told this newspaper. “Certainly, as we move into the political arena over the coming months with the election, I’m going to describe it as a lot of idle talk that is taking place, and we cannot afford it.

“We need definitive working groups looking at it, like the Coalition for Responsible Taxation, that are not only going to be empirically analysing the existing tax structure but looking at what we can for the future. We do need to have this as opposed to all these voices in the wilderness speaking to different elements. We need to bite the bullet and have a comprehensive review of our tax structure.”

Taxation, and potential reform, has again become a major issue after Philip Davis, the Opposition’s leader, last week suggested that a PLP government will review whether VAT remains “viable” and “appropriate” as the Government’s major revenue source given the changed economic landscape imposed by COVID-19.

His remarks sparked immediate derision from the Government, who suggested Mr Davis had only raised the issue as a means to win general election votes, while many senior private executives demanded that he clarify precisely what he meant.

Calling for any tax system examination to be free from political pressures, Mr Bowe told Tribune Business: “We need to look at this as a national effort so that we say what the tax system for The Bahamas should be for the next 50 years.”

Turning to what he described as the three core taxation principles, he argued that the regressive nature of the current consumption-based tax system, with its focus on VAT and import duties, did not meet the ‘fair and equitable’ definition because lower income Bahamians are paying proportionally more of their income in taxes than their wealthier counterparts.

As for bolstering economic competitiveness, Mr Bowe said The Bahamas ‘no tax’ status had not served its financial services industry since the 2000 ‘blacklisting’ and was continuing to attract negative scrutiny from the likes of the European Union (EU) and other international bodies.

And, when it came to covering the Government’s costs and delivery of public services, he pointed out that the Government has run a fiscal deficit “since Independence” to raise further questions over the current system’s usefulness.

Noting that many government agencies, such as the National Insurance Board (NIB) and Department of Inland Revenue (Business Licence, substance reporting and beneficial ownership), already require much of the information required for income tax filings, Mr Bowe added: “I think we see income tax as the boogeyman because we have merely seen it as something terrible.

“My view is, yes, income tax is viable. My view is that it will require an incredible amount of testicular fortitude but we have the talent in the country and in the Caribbean to implement it. If we keep on saying that it won’t work because of how hard it is to do, that is the height of irresponsibility and the height of laziness.

“We should not sink to that. Telling me empirically that it is not worth it, OK. Telling me we can’t do it, I’m not going to accept that,” Mr Bowe added. “It’s [income tax] not something that can be done overnight, and it will require some behaviour changes. We said VAT can’t be done, and it was done in the shortest timeframe imaginable.....

“The wealth system in The Bahamas certainly hasn’t created a sufficient enough trickle down effect to say the existing system should be protected. They say if it ain’t broke, don’t fix it, but the tax system is broken and has been ever since we’ve been targeted by outside jurisdictions where we want to do business.

“If we’re not competitive, not equitable and not meeting the Government’s funding needs, why protect it? If not income tax then something else, because what we have currently is not working.”

Mr Bowe added that the Christie administration’s 2013 ‘white paper’ on tax reform, which ultimately led to VAT’s introduction, was designed as “a stepping stone” to tax reform and not as a “concluding document”.

The focus had then been on reducing tax evasion and leakages from the current system, as well as protecting the Government’s revenue base from potential World Trade Organisation (WTO) accession. “It was not the be all and end all,” Mr Bowe said, adding that income tax was never subjected to a proper analysis then because no such system had ever been in place in The Bahamas.

He suggested that The Bahamas had missed a further reform opportunity by failing to follow on from the taxation study conducted on the Bahamas Financial Services Board’s (BFSB) behalf by Deloitte & Touche in 2018.

Comments

proudloudandfnm 1 year, 7 months ago

If they do income tax we need to go on a general strike! We cannot and must not allow it. They work for us. There is no need to drown a country of less than 400,000 in taxes just to pay useless government staff salaries! No more taxes! We must demand LESS TAXES!!!! This is getting ridiculous....

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rodentos 1 year, 7 months ago

he is only scared about his own banking business because other jurisdictions are then black listing Bahamas - but does it seriously impact anything other than banks?

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Proguing 1 year, 7 months ago

The only thing broken is tax collection and adding more taxes is not going to fix it.

Why are all these new tax articles coming out now? This looks like a coordinated effort by a handful of individuals to shove down the throat of Bahamians even more taxes.

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proudloudandfnm 1 year, 7 months ago

If we allow this we will end up with customs duties, VAT AND income tax! Plus all the idiotic fees attached to just about every government service. We the people have to take control of out government and demand what's best for us not them!

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rodentos 1 year, 7 months ago

exactly. there is no case of a tax that was introduced and later abolished. everything they put in place is here to stay.

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proudloudandfnm 1 year, 7 months ago

Every election, jobs for votes, then they get in and hire friends and families, drowning us in costs to pay for the jobs they give out. Then we get these college educated idiots talking about our broken tax system completely ignoring the fact that our government costs us exhorbitent amounts of money thru salaries and pure incompetence. 12 million to build a bulkhead to contain a fuel leak that could be repaired for millions less. Paying thousands of people to sit on their asses doing nothing all day for decades.

The only thing broken about our tax system is TOO MUCH IS TAKEN FROM US.

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FrustratedBusinessman 1 year, 7 months ago

BS. Trim down the bloated civil service (1), or better yet, actually collect on something as simple as Real Property Tax before you push a BS income tax on the people that actually do pay. Granted, now isn't the time to lay off the government workers, but the government needs to realize that they are not going to get blood out of a stone. Bahamians already pay duty, VAT, RPT if not in the Family Islands, etc. and we don't get a darn thing from it. Not even the roads, plenty of potholes where I live.

I would like to see these donkeys try and track income when they can't even collect on a friggin immobile physical structure, or vacant piece of property. How are you going to set the brackets, what is the exemption mark? Will Bahamians making 20k a year have to pay out of the meager earnings that they make, what rate? What are these donkeys going to do when the 2% of Bahamians that actually are in a "high-income" bracket start hiding all of their assets behind LLCs and trusts? How can anyone even be bright enough to not see that this will be used as a tool of political warfare, and only certain people will have to pay (just like BPL, water and sewage, and everything else in this country).

Anyone arguing for an income tax here needs to get their head checked to determine their sanity....or forced to take an IQ test.

(1) https://en.wikipedia.org/wiki/List_of...">https://en.wikipedia.org/wiki/List_of...

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Proguing 1 year, 7 months ago

Good Wikipedia link which shows that we have one of the highest number of public sector employees as a percentage of the total workforce, and since the figure is from 2009, this percentage is certainly higher now.

Can you believe that one of these "donkeys" calls this "austerity"???

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FrustratedBusinessman 1 year, 7 months ago

Yeah, the data is over a decade old. Unfortunately, accurate and up to date statistics are hard to come by for nearly anything in this country. I can only imagine that the current figure is a bit larger than that now.

As I stated, we can't decrease the size of the civil service now, doing so in the midst of an economic disaster is a horrible idea, but we have to start thinking for the future if things ever do get better.

We need to increase revenue and slash unnecessary spending at this point, we needed to do that a long time ago as a matter of act. That being said, an income tax is not going to do that. I don't know how anyone can ever think that an income tax is a good idea in this country. Most Bahamians make 20k or less ie. they don't make enough to survive now. Raising VAT to 12% made most of them ball out in agony, I can't imagine what taxing their income away will do.

The people that propose an income tax here have no clue how the average Bahamian lives. They are living far too cozy behind their gated communities.

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DWW 1 year, 7 months ago

The 33% does not probably include Bananasair, BPL, W&S, Arawak Cay Port, NIA, COB, etc. Add these in and you get up to 50% easily. I'd bet 2021 the number is probably higher like 60/40. 40% of us are working our a$$e$ off to support the rest of the entire country. Good grief Charlie Brown.

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tribanon 1 year, 7 months ago

Someone please tell Mr. Bowe that what we desperately need is Government Reform, not Tax Reform. Without the former, the latter is meaningless.

We were told VAT would be used to replace customs duties and help pay down, not slow down the growth of, our national debt. Well that certainly did not happen. What we got instead was an even higher VAT rate and an even more bloated government along with greater than ever waste, fraud and corruption at all levels of the public sector, from our elected officials right on down.

Our country has been taken down by systemic corruption. It's accepted, rewarded and culturally ingrained throughout most of the public sector and among most of our elected officials. More taxes is definitely not the answer. We urgently need Government Reform. But instead Minnis seems quite content to standby and wait for the IMF to instigate and impose on us the most severe and draconian austerity measures imaginable. That's what I call failed leadership!

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The_Oracle 1 year, 7 months ago

Government administrations are and have been broken since the PVC Pipe Scandal. Government cannot build anything without double cost in overruns, and at an original cost of $500/Sq Ft! I'm not even gonna comment of the civil service. Use the TIEA agreements to find all the offshore money held by the elected going back to 1973. These Dumb asses signed onto TIEA agreements, Might as well get some use out of them! That aught to cover 50% of the national debt. The only good thing is the IMF will downsize the Civil service, but the service will head south of the crap shoot it already is.

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bogart 1 year, 7 months ago

@ The_Oracle Good points. The Civil Service has been a body part of the political parties and have been packed by alternating govts rewarding its followers. Lots of inefficiencies which have stagnated growth of the nation, lots of archaic functions, lots of paperwork, lots of anomiily, lots of woefully incorrect staffing like 1 person doing the work of 10 and10 workers doing the work of 1. Lots of ppolitical chicanery many workers fully creating harebrained money wasting projects initiated by politicans and have the cultivated culture of speaking with the other side of their mouth to new alternating govt. etc. Wastages, wastages, wastages billions of dollars.

Sum total result is the entire nation suffers with eyes wide open and with increasing Nation Debt pushed and crippling present and future generations.

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The_Oracle 1 year, 7 months ago

Further to the above, we have an election looming which presents two piss poor choices to continue the farce and thieving. No doubt we will switch from Fric to frac and change nothing.

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tribanon 1 year, 7 months ago

Vote for the independent candidate even if he or she is unknown to you. It's highly unlikely any independent candidate could be worse than the PLP or FNM candidate.

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tribanon 1 year, 7 months ago

Suggest you too vote for the independent candidate even if he or she is unknown to you. It's highly unlikely any independent candidate could be worse than the PLP or FNM candidate.

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DWW 1 year, 7 months ago

an independent vote will speak volumes more than boycotting the polls

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rodentos 1 year, 7 months ago

btw, absolutely at the contrary, the banking system is broken (not the taxes)

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John 1 year, 7 months ago

Someone close to Customs said if Customs was to set up a secondary checkpoint and examine containers leaving the dock for a month, he can guarantee Customs revenue will double. He says some of the biggest businesses are involved in smuggling but, like most things in government, the focus is on the small man. And some of the businesses involved are owned by persons who are attached to high ranking officials in government. Both parties. One may say this is just false speculation or foolish gossip but if one was to go a bit further to examine some facts. Even when the importation of asks were banned by the PM,’to protect the local industry,‘these masks were available at certain businesses and from street vendors. Some products sold by certain nationalities in this country, including toothpaste and female hygiene products are known to be fake. Some are so poorly made and cheaply made, their packaging fall apart on the store shelves. Now this nationality is moving heavily into the liquor market and distributors fir some popular labels claim that many of the products sold on the local market are not distributed by them. Then move on to the area parts market...

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SP 1 year, 7 months ago

This same nationality is allowed to sell liquor and food in stores that a Bahamian cannot get a license to do.

Meanwhile, corruption is killing us while we do the PLP and FNM flag-waving dance!

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SP 1 year, 7 months ago

The Bahamas is the 6th most expensive country on the planet to live in, tourism is dying a slow painful death, bankings' all but dead, and nothing works.

Let's keep the PLP and FNM and aim for 1st place!

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tribanon 1 year, 7 months ago

Strongly suggest that you too vote for the independent candidate even if he or she is unknown to you. It's highly unlikely any independent candidate could be worse than the PLP or FNM candidate.

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jus2cents 1 year, 7 months ago

Tax collection and enforcement of fines and penalties is the main thing that is broken!

The staff at most of the Bahamas main tax revenue departments are lazy or corrupt, if they all did their jobs properly we'd all be better off.

Thank goodness for digitization, (30 years too late) I just hope it is being audited properly.

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DWW 1 year, 7 months ago

When the public sector civil service is reduced to an appropriate and manageable 15% of the entire labour force, then we can talk. until then... i say general strike if they want more blood from the stone. Right now 40% of us are working our a$$e$ off to support the other 60% of the workforce who get lifelong govt salary, deduction, pension, health insurance. My families biggest annual bill is health insurance... guess what is going to be cut when taxes go up? the health insurance.

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Alan1 1 year, 7 months ago

If Income Tax is introduced we will lose all the incentives to invest in The Bahamas. Overseas investors are looking to invest where they do not have tax burdens. No wonder Panama has experienced a booming economy as investors left us and neighbouring nations when we were forced to sign tax treaties with Europe, Canada and the U.S.A. Money goes where it is welcome.

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