By NEIL HARTNELL
Tribune Business Editor
A commercial bank chief yesterday questioned whether the Government’s plan to reimpose Business Licence fees on the sector could revive a situation that caused The Bahamas’ 2018 blacklisting by the European Union (EU).
Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business he was unsure whether the move unveiled in yesterday’s 2022-2023 Budget communication could again result in the ‘ring fencing’” that drew the 27-nation bloc’s ire back in 2018.
That resulted in the then-Business Licence regime for commercial banks being disbanded 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.
With few details communicated to the commercial banks on how the new Business Licence fee regime will work, Mr Bowe said it was unclear whether the Davis administration had “factored in” the so-called ‘ring fencing’ issue to its strategy.
“What has been communicated to the banks is that it’s not a reinstatement of the Business Licence; it’s an additional tax on top of what was changed in 2018,” he told this newspaper. “In 2018, we had been blacklisted for harmful tax practices, and one component was ring fencing - the tax system was not consistent between domestic and international business.
“The Business Licence regime was disbanded for both so that we carry out and remove ring fencing. Fairly comprehensive studies and research was done so that we were creating something that was correct for ring fencing. The Business Licence was disbanded, and there was a fee structure implemented according to the nature of your licence.”
Warning the Government to “be careful” about bringing the Business Licence fee back, he questioned whether it had conducted sufficient research to determine if the change will run afoul of the “ring fencing issue that caused us to be blacklisted four years ago”.
Prime Minister Philip Davis QC, in unveiling the reforms as part of the 2022-2023 Budget presentation yesterday, gave few details as to how this will be implemented and operate. “We are also introducing Business Licences for financial service providers, and reintroducing Business Licence fees for commercial banks,” he said.
“To ensure equity with insurance companies we are eliminating the premium tax, and are now requiring insurance companies to pay Business Licence fees.” The reforms to the Business Licence Act, which will give effect to these changes and were tabled in Parliament yesterday, mandate that all Bahamas-domiciled financial services entities will pay a $2,500 “tax”.
On top of that, they will pay an additional levy depending on their licence and nature of their business activity. So-called “authorised agents” operating under the Banks and Trust Companies Regulation Act 2020 will pay a $10,000 annual licence fee, while “other public banks and trust companies” will pay $5,000. Authorised dealers must part with a sum equal to 2.25 percent “of total revenues net of interest expenses”.
Meanwhile, money lenders; money transmission businesses; insurance companies and fund administrators, investment managers and advisors working with Bahamian dollar assets all have to pay a Business Licence fee matching 2.25 percent of turnover.
Mr Bowe yesterday said his “three issues” with the Business Licence fee plan, including the ‘ring fencing’ concern, was the lack of consultation with the commercial banking industry and absence of detail. Critically important, he added, was the definition of turnover or gross revenues, and whether the fee will be based on gross interest income or net interest income and if loan loss provisions will be factored into the equation.
Bahamian insurers, meanwhile, said they also needed to learn more about how the elimination of the existing 3 percent premium tax, and its replacement by “2.25 percent of turnover”, will work. Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business 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.”