By NEIL HARTNELL
Tribune Business Editor
The Government must “move past this need for secrecy” in the annual Budget process and avoid blindsiding the private sector and wider Bahamian public on planned fiscal reforms, a prominent banker is arguing.
Gowon Bowe, who headed the private sector’s Coalition for Responsible Taxation when VAT was first introduced in 2015, told Tribune Business that the immediate reaction to changes unveiled in the 2022-2023 Budget “shows how debilitating it can be” when senior business executives reveal they were totally unprepared for reforms they fear their companies will be unable to properly implement by the July 1 fiscal year start.
“We have to move past this need for secrecy in a process and agree on principles even if some of the finer details are held until agreed upon,” he said of the Budget process. “When we look at it, there needs to be - I’m not going to call it collaboration - but there at least needs to be engagement that says the principles have been communicated and fleshed out, so the Government can address concerns that are real and legitimate, and we document others that can be reviewed.”
Successive governments have been reluctant to consult the private sector, civil society and the wider Bahamian public on the annual Budget, or even indicate their fiscal policy direction and its contents, for fear that some would exploit advance knowledge to engage in so-called tax arbitrage and profit at the expense of others and the Public Treasury’s revenues.
However, this often produces panic in industries impacted by what are unexpected changes. The lack of warning causes operational and financial disruption, and affords them little time to adjust to the changes, while also resulting in prolonged negotiations with the Government in the month prior to the fiscal year’s start to either mitigate or pull back from the changes.
Calling on the Government to put “this practice of surprising the community, businesses and citizens, behind us”, Mr Bowe added: “We have to trust there will be a level of confidentiality where we discuss the principles without fear of disclosure and lambast those who breach confidentiality.”
Bahamian insurers last week said they needed to learn more about how the elimination of the existing 3 percent premium tax, and its replacement by a Business Licence fee equivalent to “2.25 percent of turnover”, will work. Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business then there was insufficient time to implement the changes prior to the 2022-2023 fiscal year’s start on July 1.
“We’re obviously going to have to study that in more detail,” Mr Ward said of the proposed Business Licence fee change. “To what extent is that going to apply to gross or net earnings. That’s an important distinction. Outside of that we don’t have an understanding of what impact this is going to have.
“We couldn’t possibly say what difference this is going to make without knowing the full details of that proposal.” Asked whether there was sufficient time for the Bahamian insurance industry to adjust to the changes, the Bahamas First chief added: “No, and that’s something again that we will have to take a look at
“That would involve a change in the computer system in terms of programming. Without the details it’s difficult to say, but I can say now that it’s unlikely to be enough time to make the change.” Anton Saunders, RoyalStar Assurance’s managing director, told this newspaper that beside informing the insurance industry it was mulling such a change there had been no consultation with the Government on the Business Licence switch.
“This is the first time I’ve seen it,” he added. “I know they had a meeting saying they were proposing it, but there was no consultation. I cannot comment. We have no idea what they are proposing and what is the turnover rate. We really need more detail on what they’re proposing and what the realities are going to be.”
Mr Bowe, also Fidelity Bank (Bahamas) chief executive, voiced concern about the lack of detail provided to himself and other commercial banks about how the plan to reintroduce Business Licence fees for the sector will work. He last week questioned whether the plan could revive a situation that caused The Bahamas’ 2018 blacklisting by the European Union (EU).
The then-Business Licence regime for commercial banks was disbanded in 2018 because it was part of a structure that created a preferential tax regime for foreign-owned entities, which enjoyed benefits and concessions that they counterparts operating in the domestic economy did not, thus falling afoul of the EU’s prohibition on so-called “ring fencing”.
Speaking subsequently to Tribune Business, Mr Bowe said: “This is one of those where let’s not be silent where details are needed. If the Government has done its studies and proper research that should be obvious. The external world is watching. The Government made a commitment in 2018 regarding the tax structure and regulatory framework.
“To me, I still believe it’s very treacherous just to give a piece of the story where there is more to come, particularly where tax is concerned and the spotlight is shone on The Bahamas.”