• G-7 move ‘helpful’ to own tax reform efforts
• Business licence ‘hard to square as rational’
• Tax should ‘not be sole reason to be here’
By NEIL HARTNELL
Tribune Business Editor
An ex-attorney general yesterday reassured that The Bahamas has “no cause to panic” over the 15 percent global minimum corporate tax rate agreed by world’s powerful nations at the weekend.
John Delaney, now head of the Delaney Partners law firm, told Tribune Business it was in some respects “helpful” that the G-7 (group of seven) finance ministers had revealed their objective as it will play into - and help guide - this nation’s ongoing tax reform efforts and discussions.
Acknowledging that the business licence fee, one of The Bahamas’ main methods of business taxation, is “hard to square with being rational” because it is levied on turnover, Mr Delaney said corporate income tax was one replacement option but warned against simply “slapping on” such a levy given the potential to unduly burden the private sector.
Urging The Bahamas to “get a fix as soon as possible” on its own tax reform efforts, he suggested that the G-7’s plans was more likely to impact rival international financial centres (IFCs) such as Bermuda and the Cayman Islands because they have targeted the multinational corporate business that is its primary focus.
The Bahamas has traditionally focused on private wealth management, catering to high net worth individuals and their families, and Mr Delaney said the G-7 initiative should not discourage companies from relocating or domiciling to this nation because tax “should never be the sole reason for being here”.
“I do not see any cause for panic arising out of this. Some may be saying it’s all doom and gloom, but it’s not,” he told this newspaper. “To some extent, I think that it’s helpful to have it out there, some pronouncement for what it’s worth as to what might be considered a headline standard for taxing corporations. It’s helpful that they have laid down a standard for taxing corporations.
“We have had some discussions for at least a decade around the subject of an income tax or corporate income tax, and what would be the appropriate rate - five percent, ten percent, 12 percent. Be that as it may, it [the G-7 move] adds something to the discussions.”
Mr Delaney said the announcement also “takes away some of the competitiveness concerns about going ahead” and adjusting taxation systems to meet the G-7 demands, given that the corporate tax ‘floor’ has already been established at 15 percent, although implementation timelines need to be “clearly articulated”.
The weekend announcement “spoke to the broad objectives as opposed to the nuts and bolts of how to achieve it”, and the former attorney general during the 2007-2012 Ingraham administration said he was “not oblivious” to the fact that others may view developments with more concern than himself.
Suggesting that the global corporate income tax push aligns with growing calls to reform The Bahamas’ existing Business Licence fee regime, Mr Delaney said: “It’s been well articulated that our Business Licence way of taxing, I think most people accept that to tax turnover as opposed to profit, it’s hard to square with being rationale in terms of enabling businesses to survive.
“You can have a business with incredible turnover that is barely making a profit or suffering a loss. Already there has been identified a need for us to look at how we tax business activity. We’ve been taxing businesses for a long time using the Business Licence Act, and this is just an alternative regime.
“However, what is important is we don’t slap on an additional tax and that it becomes detrimental in terms of overall economic growth. We don’t want to dampen economic activity. We want to encourage business activity while taxing it. Altogether, we need to look at this entire method, process by which we raise state financing and determine how we go about doing so,” he added.
“This should not be one and done. We should not just introduce a corporate tax, but we need to get on with the discussion with a view to coming to a conclusion about this whole idea of how we finance public revenues. We need to get on with it, and it’s been made more urgent by the recent pandemic and need to take on huge debts. We need to get a fix on this as soon as possible.”
The Prime Minister confirmed during the Budget communication that the Government is presently conducting another tax reform study, and Mr Delaney said The Bahamas needed to properly evaluate the G-7 position and what it may mean for this nation and the value proposition for its financial services industry moving forward.
Arguing that The Bahamas must “ensure we continue to be relevant”, he added that the global minimum corporate tax rate did not undermine its competitive advantage as this was not exclusively based on its ‘no tax’ platform - although some may beg to differ.
“Tax may be a factor, but it should never be the sole reason for a business being here,” Mr Delaney told Tribune Business. “If that is the case, that’s clearly not as good model going forward. Any jurisdiction today, if their strategy is being a ‘no tax’ jurisdiction, then they have a strategy that is hugely problematic and should have got the memo 21 years ago.
“As regards this initiative, I don’t think it should create long sleepless nights for The Bahamas. It is good information for us to know how things are evolving, and it’s useful for us in reorganising our own affairs both domestically and internationally.”