By NEIL HARTNELL
Tribune Business Editor
The Bahamas “does not have the luxury of changing its tax system on a dime”, a Cabinet minister argued yesterday amid escalating pressures for a minimum global corporate tax rate.
Kwasi Thompson, minister of state for finance, told a post-budget press conference that The Bahamas cannot afford to “make changes at a whim” and “haphazardly” adjust its taxation system without having the necessary data to determine the impact on taxpayers, businesses and the wider economy’s competitiveness.
The Bahamas and other international financial centres (IFCs) are likely to come under increasing pressure to implement a corporate income tax if the US and European Union (EU) can reach agreement on the issue, but Mr Thompson argued that local debate on the matter was too “nonchalant” and not being guided by empirical evidence.
“Many people are speaking about changing the tax structure, and in an almost nonchalant way are saying change this, change that,” the minister argued. “I don’t believe the Ministry of Finance has the luxury of changing on a dime when it comes to tax structure....
“We want to be data-driven, not do this stuff haphazardly. We cannot make changes at a whim without having data. What we’re committed to doing, once the results come in, is to have a dialogue and discussion with the public on what they are.”
The Prime Minister, in unveiling the Budget on Wednesday, said the Ministry of Finance was engaged in “a diagnostic review” of tax policy and administration, as well as an expenditure assessment, as it moves “to have equity and fairness in taxes, and efficiency and impact in expenditures”.
On the diagnostic study, he disclosed: “This study will examine the Government’s current sources of taxation, revenue trends and will explore issues such as equity and efficiency in our tax practices.
“At the completion of this exercise, we intend to publish the findings in a white paper to garner feedback from key stakeholders and the general public on how the Government should proceed with our ongoing tax reform efforts.”
As for the spending side, the Prime Minister added: “We plan to complete the public expenditure review, which has already commenced with the support of the Inter-American Development Bank (IDB). The goal of this study is to identify areas where there are low efficiencies, duplication or other areas where the Government can reduce spending to close the gap between revenue and expenditure.
“We are moving towards a system where we will no longer have to pay for the same service multiple times while the public receives limited benefits. Ultimately, the study will provide a planning framework for achieving a more targeted and efficient management of total expenditure, from year to year.”
No mention was made in the Budget communication of the growing global push for a minimum global corporate tax rate, with the US having suggested that 15 percent be set as a ‘floor’ or starting point with the issue set to be discussed at the upcoming G-7 summit of the world’s major industrialised nations.
Should the initiative gain momentum, and be adopted as a global standard, it would have profound implications for both The Bahamas’ tax structure and the value proposition for its financial services industry, which has long competed on the basis of being a ‘no tax’ jurisdiction.
Meanwhile, Mr Thompson said the multiple tax breaks and investment incentives unveiled in the Budget will be paid for by the $50m in revenue enhancement measures involving vacation rentals and real estate that were unveiled in the 2021-2022 Budget.
“This budget strikes a necessary balance,” he added. “It provides very targeted and focused tax breaks and concessions that are principally geared on accelerating the pace of economic activity and recovery.
“Most importantly, all of the tax breaks and concessions are paid for by the incremental tax measures outlined in the Budget. We made the deliberate decision that the concessions would have to be matched with corresponding revenue gains to pay for them.”
He later reiterated: “We saw it as our responsibility not to create tax concessions on one side without having the necessary revenue measures to balance it. That took into account the situation of where we are at. It takes into account the economic reality of where we are, our debt levels and strategy of reducing the debt as well.
“It’s a balanced approach that the Ministry of Finance was able to get. We’re also able to say that those tax concessions are for those people that really need it, and those intended to stimulate economic activity are good. At the same time, we cannot be reckless and not find a way to make up for those revenues.”
Marlon Johnson, the Ministry of Finance’s acting financial secretary, said the various tax breaks and incentives unveiled by the Government were likely to forego between $24-$25m in revenue. He added that the Government believes it may be able to collect more than the targeted extra $31m from the vacation rental home market.