Corporate tax 'driven' by revenue demands


Tribune Business Editor


The Government's corporate income tax proposal is "driven" by the need to increase revenues and could "be a gateway" to further progressive reforms that ultimately include a personal income tax, a governance reformer said yesterday.

Hubert Edwards, the Organisation for Responsible Governance's (ORG) economic development committee head, told Tribune Business that the Government is "strategically leveraging" the need for The Bahamas to comply with the G-20/OECD's 15 percent minimum global corporate tax rate to "inject greater equity" and fairness into the taxation system.

While the first of four options would only levy 15 percent corporate income tax on Bahamas-based entities that are part of multinational groups generating annual turnovers of 750m or more, and are thus caught by the G-20/OECD initiative, the other three propose different treatments for other firms. These range from corporate income tax rates of between 10 percent and 12 percent, plus an option for small businesses earning under $500,000 to still pay Business Licence fees.

Describing the Government's argument for the introduction of corporate income tax as "very impressive", Mr Edwards said the move was largely being pushed by the need to increase tax revenues as the Davis administration seeks to hit a 25 percent revenue-to-GDP target by 2025-2026, and a Budget surplus a year earlier. Revenues, according to the latest Fiscal Strategy Report, are projected to grow by $1.3bn-$1.4bn over a four-year period.

"We must appreciate that this is largely a domestic matter driven by the need to increase the revenue space of the country. The contemplation of a wider implementation of corporate income tax (CIT) is strategically leveraging the need to comply with the OECD," Mr Edwards told this newspaper.

"Without doubt this presents a significant window of opportunity to inject greater equity and fairness in the taxation regime while seeking to achieve revenue goals. Looked at differently, if the Government was to ultimately fail in implementing a corporate income tax beyond its proposed first option, it will still be forced to eventually raise taxes under the existing regressive regime.

"The 'green paper effectively identifies and underlines revenue needs, which have been discussed and projected over the last year, and crystallised in the 2022 Fiscal Strategy Report. On the domestic side of the equation it is imperative to raise additional revenue."

Mr Edwards acknowledged that corporate income tax's potential arrival goes against The Bahamas' long-standing business model as a 'no' or 'low tax' jurisdiction, and conceded that it "will represent a wrinkle in the fabric of its existing value proposition".

However, he added: "Such a conclusion requires balance. To reiterate, a very clear case has been made [that] there is a need for new or additional taxes. Corporate income tax is, however, not sales tax and fees and will present certain complexities, administratively and regulatory, which calls for very careful implementation so as not to damage the country's attractiveness.

"There must be careful thought given to legislation and tax regulation. At the heart of any taxation system there must be equity and efficiency. Regulatory burden should be avoided, but government through their advisors would have already been fully aware that corporate income tax in the hands of experienced tax planners can be vicious, and the certainty created by the current system can’t be guaranteed.

"The need for a robust approach to enforcement must be anticipated, and the requisite steps taken to ensure a comprehensive but balanced system is in place to facilitate this," Mr Edwards added. "One of the main challenges faced by government is the need for its policy choice to be revenue positive....

"The likely impact is that this will cause a major cultural shift for the domestic sector and taxation going forward will look markedly different. The country, too, could be seen much differently as a strategic location. It is, however, too early to draw a hard conclusion in that regard. It is likely that over the course of the consultation period a greater sense of what the potential impact might be will emerge."

Arguing that corporate income tax must be seen as part of wider tax reform, Mr Edwards said: "In all likelihood this implementation would be a gateway change for a later adoption of a more progressive taxation system to include income tax at some level. Government should therefore appreciate the vagaries of income tax regimes, and make changes to government and governance which will facilitate its effectiveness and efficiency.

"The 'green paper' encapsulates the intent to take more from the economy and, consequently, the country must be shown and assured how the takings will be more effectively managed vis-à-vis historical performance and track record. There are lingering reforms which must necessarily precede or be implemented alongside any corporate income tax.

"Fiscal responsibility must take on a more heightened sense of awareness. The Government must review and rethink its current approach to concessions with a view of synchronising disparate negotiated allowances under the corporate income tax system. As part of the way forward, taxation must be seen and used as a more potent fiscal tool designed to drive development across the archipelago."


Sickened 1 week, 5 days ago

What will solve all of our financial issues is less corruption. But that seems impossible to achieve.


observer2 1 week, 5 days ago

Agreed. Let’s see a Green Paper on Travel and Entertainment expenses.

If these ppl would put their offices in Grants Town and not London Town I am sure they would want to focus on education, housing, crime, food security, global warming and crime.

Versus how can we extract more money from the few that have any money left.

At $12.5 billion in debt, up $2 billion since the new administration started and an S&P rating one grade above default please pray no hurricanes hit Nassau this year.

It will be a catastrophe of Haitian proportions.


observer2 1 week, 5 days ago

The societal divergence between rich and poor is too large and growing, we say we have economic freedom but taxes and a few monopolies have a grip on competition.

So build away at bigger and better prisons, police cars, more gated communities and private islands for the tourist.

Best of luck. The middle class is spending millions educating thier kids in western developed countries and telling them never to return.

The G7 love it because they get young, intelligent, educated immigrants … the best snd brightest young Bahamians plus their inheritances as thier societies age.

The Bahamas is left with an even more unequal society.


ThisIsOurs 1 week, 5 days ago

and.... heavily unequal societies end up self destructing. The gates, walls and palaces never providedsufficient protection.. repeated over and over in recent and past history


Sickened 1 week, 5 days ago

Let's consider any new tax for a minute. Will that achieve anything for our bottom line? If government collected an extra billion in taxes, will that windfall go to paying off some of our debt? No! Will it sit in the consolidated account for more than a year? No! What about 5 billion? I don't think that would last more than any parties term in office? What about 10 billion? I think we would see lots of development - lots of new things. But what about our debt? Pretty sure that wouldn't be paid down by very much so we'll still have to contend with that - or our children would have to. Let's face it, no matter how much 'government' brings in, they will find ways to spend that; plus a percentage. So, we need to limit the amount of money our officials can get their hands on - not the other way around.


Maximilianotto 1 week, 5 days ago

The government is near default and with the back to the wall. Ask vendors waiting for overdue payments. This announcement is just to pacify bondholders.


observer2 1 week, 5 days ago

Maxim, the Bahamas won’t do a disorderly default they will selectively default to keep the US$ tap open. They will continue to pay the US$ foreign debtors interest while do a 2.5% Bahamian dollar devaluation. Just a lill devalue , move a long now ain nuttin to see here.

IMF to keep us well supplied with US$’s while the monopolies extract and export US$ for thier offspring fortunate enough to be gone.

Hardly noticeable, no body move, no body get hurt too bad.


ThisIsOurs 1 week, 5 days ago

From a May 2019 Tribune article.

"Department of Statistics data, which took 2012 as its baseline, revealed that it took six years for the Bahamian economy's real GDP output to move beyond the level recorded for that year

GDP, which measures the total value of goods and services that an economy produced, stood at $10.721bn for 2012. However, this output slumped by more than $300m the following year to $10.404bn as a result of a 3 percent contraction

The Bahamas spent the next five years regaining this lost output, with real GDP growth rates ranging from a high of 0.7 percent in 2014 to a low of 0.1 percent in 2017. The “major” growth surge came in 2018 as a result of the 1.6 percent expansion, which finally moved real GDP above 2012 levels to $10.763bn.

We were doing pretty bad in 2019 and even worse before that. When the leaders rejoice about "nearing 2019 levels"... I dont know what reality theyre trying to create. The sober message should be the urgent need to move well past 2019.


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