• 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
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.