The Tribune

By FAY SIMMONS

Tribune Business Editor

jsimmons@tribunemedia.net

A CABINET minister has affirmed that the introduction of a personal income tax is “not on our agenda” - not even for the top 10 percent of earners as recommended by the International Monetary Fund (IMF).

Michael Halkitis, minister of economic affairs, said such a levy for the highest earners was not in the Government’s “contemplation at all” and it would take significant consultation and the achievement of wide-ranging consensus before a fundamental change in the country’s taxation system was ever implemented.

He added: “Personal income tax? No. As a matter of fact, I said that to the experts that did that report. That’s not on our agenda, so let me just leave it right there, at all. I know some people say they prefer it. But you know, they say that now. But that’s not on our agenda; it’s not in our consideration.

“I saw, I think the IMF, again, in their report, once again in their report suggested that we put an income tax on top earners. That’s not in our contemplation at all.

“We thank them for their report, we see what’s useful for and we implement that. But some of these things... I wouldn’t say radical, but that sort of fundamental change in the way that we’ve been operating from our very existence requires a whole lot of consultation and consensus and everybody has to agree. That’s what we’re going to do.”

The IMF, in its full Article IV report on The Bahamas, urged this nation to exploit the G-20/OECD drive for a 15 percent minimum global corporate tax to craft and implement such a tax to suit this nation’s own needs.

And, besides imposing a personal income tax on the highest 10 percent of income earners, the IMF called for such a reform to be accompanied by a 5 percent levy on capital gains, dividends and interest income. It also suggested that the marginal personal income tax rate equal that of the corporate tax to pre- vent companies avoiding the latter by paying our profits as salaries to shareholders and top executives.

Outlining what Bahamian tax reform should look like, it argued: “Introduce a corporate income tax. Replacing the Business Licence fee with a 15 percent tax on corporate profits for large corporations could raise an additional 1.4 percent of GDP and would be compatible with the OECD’s global minimum tax rules.

“Designing the profits tax as a cash flow tax that allows full expensing of investment, and includes an unlimited carryover of losses, would simplify implementation and prevent disincentivising business investment. A lower tax rate could be provided for SMEs (small and medium-sized businesses) instead of retaining the Business Licence fee for small entities.”

Much, if not all, of this was included for consideration in the Government’s corporate income tax ‘green paper’ that required companies, industries and others to provide feed- back by end-August 2023. It suggested that, in the majority of cases, a corporate income tax would replace the existing Business Licence regime to as to avoid double taxation.

Meanwhile, the IMF’s Article IV report called for corporate income tax to be accompanied by the personal variety but only for senior management executives and those in high-earning positions. “The personal income tax would have high standard deduction so as to impact only the top 10 percent of earners and would be accompanied by a 5 percent tax on capital gains, dividends and interest income,” the IMF said.

“Setting the marginal personal income tax rate equal to that of the corporate income tax rate would help reduce avoidance through the re-characterisation of profits as labour income and would raise around 2 percent of GDP annually.”

Mr Halkitis said the Government is “leaning”, in the first phase, to introducing a 15 percent corporate tax on Bahamian companies that are part of multinational groups generating 750m euros per year or more in turnover. This, he added, will “not have a whole lot of impact” for most firms while also enabling The Bahamas to fulfill its commitments to the G-20 and OECD.

“We had a study done by one of the major accounting firms [Deloitte & Touche],” Mr Halkitis said. “They did a report and we released a ‘green paper’ asking for feedback. We got that feedback. We are now looking at that feedback and are now in discussions, internally at first, about the best way to proceed without, you know, a lot of confusion, without increasing the burden on anybody, but being able to capture some elements that we don’t presently capture and mostly in the multilateral area.

“Within the next few weeks, shortly after the mid-year Budget, as we roll up to the [May] Budget, you’ll be getting more information on where the Government wants to go. And we’ll be seeking more feedback from, particularly, the business community.”

Mr Halkitis said the Government is considering implementing what is known as the G-20/OECD initiative’s ‘pillar two’, namely the 15 percent minimum global corporate income tax on multinational groups that generate annual turnover of 750m euros and their subsidiaries.

He added: “I can say that we are leaning firstly at doing the pillar two, which is the, you know, multi- national companies with income of 750 million euros or more. So, dealing with those, and so that will not have a whole lot of impact on, if any, local companies.”

“That’s one we’re looking at, because as you know, any sort of change in, you know, what we’ve been doing for so long requires a lot of consultation and feedback.”