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Gas stations argue Business Licence 'further strangles' us

(stock photo)

(stock photo)

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Petroleum Retailers Association's vice-president says he backs the introduction of a corporate income tax to replace Business Licence fees that "further strangle us".

Vasco Bastian, speaking to Tribune Business before most of the Association's members halted diesel sales, said the turnover-based Business Licence fee had "never really worked for us" and he preferred a tax based on net earnings and profit margins.

"That would be welcome. That would definitely be welcome," he said of the corporate income tax reform options proposed in the Government's 'green paper'. "I'd be for that. We pay on the gross turnover, and because of the volume of business we do it has never really worked for us, that formula.

"I find it to be an impediment for all of us in the petroleum industry. It's never worked. It further strangles us. Business Licence fees can either be from $30,000 to $45,000 to $50,000 per annum. A corporate tax would be welcome. Anything that could move this industry forward, anything that could help us, we welcome. Anything."

The Government's 'green paper' on corporate income tax reform gave a lower Business Licence fee range than Mr Bastian. With respect to gas stations, it said: "A range of flat fees are applied; the lowest rate of $1,000 up to the highest rate of $35,000."

Many in the Bahamian private sector have long favoured reforming the existing Business Licence fee regime, which is based on turnover rather than corporate profits. It is viewed as a distortionary tax that disproportionately penalises high turnover/low margin businesses, such as food stores and gas stations, while favouring high margin/low turnover entities such as services firms

It is also causes further complications for companies who sell a significant volume of price-controlled goods, and often leads to companies paying more in Business Licence fees than they earn in annual profits while others are effectively taxed into a loss.

The Government's 'green paper' acknowledged these concerns as it noted the higher margins enjoyed by some industries that paid the same Business Licence fees, based on turnover, as their lower margin counterparts. Real estate and recreational activities, both enjoying earnings margins of close to 40 percent based on EBITDA (earnings before interest, taxation, depreciation and amortisation), were shown as paying Business Licence fees equal to 1 percent of turnover.

The latter percentage was equal to wholesalers and retailers who, while also paying almost 1 percent of their turnover in Business Licence fees, earn an EBITDA margin of just 5 percent. "The main form of business taxation in The Bahamas is the Business Licence fee, which is based on gross turnover and has a range of reliefs and incentives," the Government's 'green paper' said.

"Although the rates applied to different businesses are tiered, these are levied on gross turnover, so the Business Licence fee system does not account for the affordability of the fee to businesses in terms of annual profits. This means that the Business Licence fee does not necessarily create the appropriate incentives for growth or investment, and results in disparity across sectors in terms of the share of Business Licence fee paid relative to total turnover.

"For example, the wholesale and retail trade sector and recreational activities sector each pay 0.9 percent of turnover, on average, to the Business Licence fee. However, businesses in the wholesale and retail trade sector are estimated to have a lower profit margin than businesses operating in the recreational activity sector (6 percent compared to 40 percent)."

And, further acknowledging the need for reform, the Government's 'green paper' added: "The existing Business Licence fee system generates relatively low revenues for the Government, whilst also creating disincentives for investment for some firms. As a proportion of economic activity, fees obtained from the Business Licence fee system represented around 1 percent of GDP in 2019.

"This compares to revenues from corporate taxation representing 3 percent of GDP, on average, across the OECD. Additionally, the Business Licence fee system is levied on gross turnover regardless of profit margins meaning that, in some instances, it must be paid by firms even in loss making years. In sectors where profit margins are variable and relatively low, this feature may be limiting incentives to invest domestically and acting as a barrier to economic growth.

"Globally, the approach to business taxation is converging towards a minimum level of business taxation for large multinational groups. This convergence is guided by the OECD Pillar Two agreement, to which The Bahamas is a signatory along with around 140 countries. The current Business Licence fee system does not align with the international rules proposed under the agreement, and The Bahamas could potentially lose government revenues as a result."

Comments

ThisIsOurs 4 months, 1 week ago

Presupposes that income tax wont be abused by govt for lack of ingenuity and innovation like every other tax

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GodSpeed 4 months, 1 week ago

Well if things are so terrible and there is no money to be made then just shutdown. Why put yourself through such torture?

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