‘Burden Cannot be Heavier with Corporate Income Tax’

Corporate income tax must not impose a heavier tax burden on businesses than what already exists, private sector executives are warning, while urging that such proposed reform cannot be viewed in “isolation”.

Robert Sands, the Bahamas Hotel and Tourism Association’s (BHTA) president, told Tribune Business that the Government’s four proposed corporate income tax reform options must be assessed holistically alongside all other taxes and levies that the Government currently imposes.

With the end-August deadline for feedback on the Davis administration’s so-called ‘green paper’ looming, he added that the hotel and tourism sector had not received a response since it submitted its recommendations “a few months ago”.

Mr Sands told this newspaper of the industry’s response to the corporate income tax proposal: “It had its genesis in that we cannot look at that in isolation, but have to look at a number of other taxes that exist, such as Customs duties and Business Licence fees, trying to determine what is an acceptable and unacceptable level of taxation.

“We have to appreciate what level they are looking at, and what will happen if there are reductions in duties and Business Licence fees. Until we can get an appreciation of that, the thinking on all those things in aggregate, it’s very difficult at this time to make an overall recommendation.”

The options detailed in the Government’s ‘green paper’ would eliminate the Business Licence fee for most, if not all, companies operating in the domestic economy should a corporate income tax be ultimately adopted by The Bahamas. Simon Wilson, the Ministry of Finance’s financial secretary, recently estimated that implementation of a corporate income tax economy-wide is some four years away if this nation elects to go that route.

“We continue to be open to collaboration and consultation on this particular matter,” Mr Sands said. “I don’t think the industry is dismissive of it, but we have to have appreciation for all these other taxes that we’re paying. I think we still have to look at it, and assess what we’re paying today versus what is levied with a corporate income tax and we will be paying tomorrow.

“The impact will be determined, by and large, by at what level, and what will be the percentage rate, versus the taxes we’re paying now. If we’re paying ‘x’ today and we’re expected to pay three-four times ‘x’ tomorrow that would not be an acceptable approach. We have to look at the recommendations, and what will be reduced elsewhere, to see what the net proposed impact will be on the sector.”

Rupert Roberts, Super Value’s owner, told Tribune Business that “the devil’s in the detail” with regard to the corporate income tax proposal. Echoing Mr Sands, he added that the Government must avoid increasing the private sector’s total tax burden beyond what exists today, and added that any reforms cannot result in a further increase to the cost of living.

“I think we realise it’s all coming. We know everybody suggests it’s the way of the future,” Mr Roberts added. “It seems to me that it will be replacing the Business Licence fee. We cannot have both as that would be over-taxing. I hope it’s not going to be too harsh and I hope it doesn’t increase the cost of living. But we can hardly say that until we know what it is.

“It’s always going to be the devil’s in the detail. We have to see where we are, and if you are better or worse off. It’s hard to comment until we know all of the facts, and you apply it to your particular business and see if you will be better off or worse off, and pay more taxes or less taxes. I hope it’s nothing that contributes to the increased cost of living.”

A corporate income tax will be the first such income-based levy in the country’s history, apart from the National Insurance Board’s (NIB) payroll-based contributions, and is intended to ensure The Bahamas complies and fulfills its obligations as one of 140 countries that have signed on to the G-20/Organisation for Economic Co-Operation and Development (OECD) drive for a minimum 15 percent global corporate tax.

In the first instance, this initiative applies only to corporate groups and their subsidiaries that have a minimum annual turnover in excess of 750m euros. The Government’s ‘green paper’, which is dated May 17, 2023, 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 turnover category, while maintaining the Business Licence status quo for all entities which are not affected.

While that would have zero impact on the country’s economic growth and unemployment rate, the paper estimates it would cause foreign direct investment (FDI) and domestic investment to contract by 0.3 percent and 0.1 percent, respectively. The Government may implement this in the near term as a short-term measure to ensure compliance with the G-20/OECD, depending on the initiative’s progress, while leaving much of the rest of the economy untouched.

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”.

This option, the ‘green paper’ adds, would have minor negative impacts on GDP, foreign and domestic investment, and unemployment. The latter would rise by 0.1 percent, while GDP growth would contract by 0.3 percent and foreign and domestic investment fall by 1.5 percent and 0.3 percent, respectively.

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 third option, though, would result in greater negative economic impacts although generating more revenue for the Government. Under this scenario, the ‘green paper’ said GDP growth was estimated to contract by 0.9 percent with unemployment increasing by 0.5 percent. Foreign and domestic investment will fall by sums equivalent to 5.1 percent and 1 percent, respectively.

The final option, which will 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.

This would result in an economic contraction of 1.7 percent, or around $200m, the ‘green paper’ projected, with the unemployment rate rising by 0.9 percent. FDI would fall by 10.2 percent, and its domestic investment counterpart by 2 percent. However, government revenues under this scenario are forecast to rise by 96 percent compared to the $140m collected from Business Licence fees in 2019 (see other article on Page 24B).

The more favoured options, according to the ‘green paper’, would see government revenues rise by 36 percent and 62 percent from implementing the second and third scenarios, respectively, compared to those same 2019 Business Licence revenues. Just levying 15 percent corporate income tax on those groups targeted by the G-20/OECD, though, would only produce a 4 percent revenue rise from business community taxation.

By NEIL HARTNELL- Tribune Business Editor