By NEIL HARTNELL
Tribune Business Editor
The Bahamas “cannot be complacent” despite yesterday being granted more time to determine its approach to the G-7/OECD-led push for a minimum 15 percent global corporate income tax rate.
John Delaney QC, a former attorney general, told Tribune Business it was beneficial that The Bahamas has seemingly obtained “more breathing space” to develop its response after Mathias Cormann, the Organisation for Economic Co-Operation and Development’s (OECD) secretary-general, conceded that the plan’s implementation has been pushed back by one year to 2024.
Speaking at the World Economic Forum in Davos, Mr Cormann said the previous timeline had been “very ambitious” and “difficult discussions” were being held amid fears that Republicans in the US Congress could scuttle any agreement - especially if they seize control of both the Senate and House in the upcoming mid-term elections.
“We deliberately set a very ambitious timeline for implementation to keep the pressure on, and we think that has helped keep the momentum going,” the OECD chief said. “But I suspect it is probably most likely that we will end up with a practical implementation from 2024 onwards.”
The delay comes just as the Government delivers its 2022-2023 Budget in the House of Assembly today. Prime Minister Philip Davis QC, in his mid-year Budget address several months ago, said the Government was awaiting the results of a study by the Deloitte & Touche accounting firm into the Bahamian tax system to determine how it should respond to the 15 percent corporate tax push, including whether the Business Licence fee should be converted to such a regime.
Mr Delaney, head of the Delaney Partners law firm, yesterday said the OECD secretary-general’s comments mean The Bahamas now has more time to determine what - if any - tax reforms are necessary to suit this nation’s own economic and fiscal competitiveness as opposed to outside pressures.
“It does mean that the Government would have a greater period, an extended period, to determine how to it wishes to go for our own national purposes and communicate that decision one way or another, whichever way it goes, to the country and industries that will be affected,” he told Tribune Business.
Acknowledging the greater time afforded to consult the Bahamian financial services industry and critical sectors in the domestic economy, he added: “It’s more time for the industry to articulate what their views may be on the subject. It’s a beneficial development but we cannot be complacent.
“It’s not just to give us breathing room space and time to work out the analysis and see which way to go, but also to more fully appreciate how the economy’s growth is trending. It gives us the opportunity to get more information and make a more informed decision.”
Mr Delaney said converting the Business Licence fee regime, which “has a great deal of controversy around” it, into a corporate income tax was an obvious option for The Bahamas but the ramifications needed careful study before any reform is decided.
Besides The Bahamas needing to ensure there is “a level playing field” when it comes to implementing any changes, Mr Delaney added: “As a general rule of thumb, high taxes are unlikely to make our economy an attractive or effective economy in which to do business and operate. We should look at having clarity and certainty, and reasonableness, in relation to our taxes.”
The Bahamian private sector has long called for the annual Business Licence fee to be converted into a corporate income tax that is instead levied on net profits rather than gross revenues and turnover. The Prime Minister, in unveiling the mid-year Budget, confirmed such a reform is being studied and assessed by the Government given the global push for a minimum 15 percent corporate income tax rate to combat tax arbitrage by large multinational enterprises.
Business Licence fees, which are projected to generate some $101m in revenues for the Government in the 2021-2022 fiscal year, are forecast to increase to $150.376m by 2023-2024.
However, while they represent a significant revenue stream for the Government, many in the private sector view Business Licence fees as distortionary. They are seen as penalising high turnover/low margin businesses, such as food stores and gas stations, while favouring low turnover/high margin services companies because they are levied on gross revenues.
Many firms also complain that they regularly pay more in Business Licence fees than they earn in profits, or that it drives them into a loss-making position. Mr Davis’ mid-year Budget communication indicated that his administration has picked up where its Minnis predecessor left off in continuing with Deloitte & Touche’s study of tax reform options including imposition of a corporate income tax.
The G-7/OECD initiative has two components or “pillars”. The first = is billed by the OECD as ensuring “a fairer distribution of profits and taxing rights among countries with respect to the largest and most profitable multinational enterprises”.
This taxing rights reallocation only applies to multinationals with annual turnover greater than 20bn euros and profit margins greater than 10 percent, with a particular focus on those that have benefited so much from the digital economy - the likes of Facebook, Apple and Google. Just 25 percent of profit above the 10 percent threshold is to be reallocated.
And the 15 percent minimum global corporate tax, billed as generating an additional $150bn in annual global tax revenues, is only targeting companies with a yearly turnover of greater than 750m euros.