By NEIL HARTNELL
Tribune Business Editor
The Bahamas was yesterday urged “not to have a rush of blood” in moving too swiftly on corporate income tax as the Government inches towards issuing a ‘white paper’ on the subject.
Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, told Tribune Business that discussions on such reforms are likely to become “more focused” following the International Monetary Fund’s (IMF) latest call for The Bahamas to examine more progressive taxation options.
Speaking after the IMF forecast that The Bahamas’ 2023-2024 fiscal deficit will be near-triple what the Government is projecting, coming in at $379m as opposed to $131m, he acknowledged: “The push on corporate income tax, I think, is going to become a little more focused now given these types of projections.”
While the implications of the Fund’s analysis are that present revenue streams are insufficient to drive the pace and extent of desired fiscal consolidation, Mr Edwards told this newspaper: “Government should not have a rush of blood in moving to a corporate income tax. It should be very deliberate and strategic in its position.
“There may be an urgency, but work it in a very deliberate fashion to ensure the end result benefits the country.” Simon Wilson, the Ministry of Finance’s financial secretary, said yesterday that the Government is compiling all the feedback received from the ‘green paper’ consultation on corporate income tax that closed at end-August 2023.
Once that process is completed a recommendation will be submitted to Cabinet for its consideration, with the hope this will result in the go-ahead to release a so-called ‘white paper’ that will trigger more detailed consultation with the private sector and wider society on the corporate income tax proposal.
Mr Wilson said it is hoped this will take place around the time of the mid-year Budget in early 2024. “We have the comments from the ‘green paper’,” he added. “We are compiling those comments, and the next step is to go to Cabinet with a recommendation. That recommendation will probably lead to a ‘white paper’ on corporate income tax. We are hoping around the mid-year we should be able to provide a timeline.”
Most observers feel it will likely take several years for The Bahamas to implement an economy-wide corporate income tax, with such a roll-out unlikely to occur before 2026, even if this nation complies with and enacts earlier the G-20/OECD’s 15 percent minimum rate for those entities that meet the 750m euro qualifying threshold.
Kwasi Thompson, the Opposition’s finance spokesman, yesterday said: “We need to understand what the Government’s plans are with corporate income tax and the global tax issue. We need to understand what their plans are for adjustments to the Business Licence regime. These are relevant issues the IMF has raised, and what the Government must speak to the people about. What are the plans?”
The IMF, in its Article IV report, called for tax reforms that both raise revenues and make the Bahamian system more “progressive” by turning away from the regressive consumption-based levies that have dominated for decades, such as VAT and Customs duties.
“Beyond reducing the fiscal deficit, a set of comprehensive tax reforms would be valuable in both raising revenues and improving progressivity. In particular, the implementation of the OECD [15 percent] global minimum corporate tax by trading partners provides an opportunity for The Bahamas to introduce a well-designed corporate income tax accompanied by a personal income tax on the highest earners,” it added.
“There is also scope to significantly rationalise existing preferences, loopholes and exemptions in the tax system.” The call for an income tax on high-earners, which the IMF has made before, is designed to prevent businesses evading/avoiding corporate income tax by paying out profits to their owners in salaries.
The ‘green paper’ on “corporate income tax strategies for The Bahamas” revealed that none of the four corporate income tax options being considered will have a positive impact on Bahamian economic growth, employment, foreign and domestic investment with the fall-out negative in all bar two instances.
The Davis administration, following studies by the Deloitte & Touche accounting firm, said it has to consider “the trade-off between raising government revenue at the expense of economic activity” in all four scenarios as it mulls historical changes that will potentially eliminate Business Licence fees for most companies and replace them with a corporate income tax.
It is intended to ensure The Bahamas complies and fulfills its obligations as one of 140 countries that have signed on to the minimum 15 percent global corporate tax drive. In the first instance, this applies only to corporate groups and their subsidiaries that have a minimum annual turnover in excess of 750m euros.
The Government’s ‘green paper’ sets out the first option as merely introducing a 15 percent corporate income tax for all Bahamas-based entities that fall into that 750m-plus euro turnover category. The second and third options, described as “more nuanced” because of the better balance they strike between tax revenue and economic impact, are those the Government indicates it is giving more serious consideration to.
The second, labelled as “a soft introduction”, would introduce the same 15 percent rate for all those caught in the G-20/OECD net and also levy a 10 percent corporate income tax on all other businesses “to maintain regional tax competitiveness”.
The third option, branded as “simplicity driven”, would exempt or carve-out small businesses earning less than a $500,000 annual turnover to leave them still paying the existing Business Licence fee. Bahamas-based entities in groups that meet the G-20/OECD threshold would pay a 15 percent corporate income tax, and all other companies generating more than $500,000 would pay a 12 percent rate.
The final option, which would generate the greatest revenue increase for the Government but also inflict the harshest economic impact, is to simply impose the 15 percent corporate income tax rate on all businesses with a turnover greater than $500,000 per annum and a 10 percent on small and medium-sized enterprises earning less than that.