The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

PROVIDING incentives for businesses, and ensuring these align with World Trade Organisation (WTO) rules, must be factored into discussions over a new tax regime for The Bahamas, a leading accountant said yesterday.

Ray Winder, Deloitte and Touche (Bahamas’) managing partner, told Tribune Business that generating revenue should not be the only concern in talks over a new tax system.

A symposium to bring tax reform to the forefront is scheduled for October 25-26, and Mr Winder, the Bahamas’ lead WTO negotiator under the former Ingraham administration, said: “When we are talking about taxes, one must not only be concerned about generating revenue.

“One must also be concerned about incentives for businesses, be they Bahamian or non-Bahamian, and how those incentives are aligned with the rules of the WTO. There are certain incentives that will be considered acceptable in terms of the WTO rules, and there are other incentives that may not be acceptable.

“It’s important that as we seek to make changes to our tax system, in order that we generate more revenue, that we also reflect on how we can further incentivise our businesses -  either those currently established or those to be established in the future.”

As for tax reform’s implications for the Bahamian financial services industry, Mr Winder added: “The future of international financial centres remains uncertain. While the worst of the financial crisis and economic downturn appears to have passed, the competitive landscape remains in flux, and the debate about  regulatory change, consolidation and tax policies continues, with few of the financial details agreed upon.

“What is certain is that the international financial centres are experiencing a period of transition, leaving behind many of the practices and products of the pre-crisis era and moving towards a new financial landscape, re-aligning their workforce to meet new levels of demand, rebuilding customer relationships that have been unsettled during the crisis, and reviewing the strategic positioning of their tax policies.”

And he said: “The assumption that the lower tax rate is better is no longer a foregone conclusion. The demands to reduce deficit spending have resulted in a need to put all revenue raising on the table.

“In addition, financial institutions and multinational corporations face ever increasing tax regimes in their head office countries, and are finding that having  branches and subsidiaries in low or no income tax centres has little advantage in an era of demands for increased transparency, or in reducing their tax obligations overall.”

Mr Winder said most of the Bahamas’ tax revenue is currently  being derived from import tariffs, which are not yielding sufficient sums to close the recurring fiscal deficit.

“In addition, our tariff rates are considerably higher than those of countries that recently acceded to membership of WTO,” said Mr Winder.

“WTO provides an umbrella for us to be able to trade with certain countries around the world without the possibility of those countries setting up barriers to prevent us from trading with them.

“As a non-member of WTO you don’t have that protection. It also allows us to begin to better protect ourselves against the various countries that have been using the country as a dumping ground and making it difficult for our local industries to be competitive. Today we don’t have any mechanism to prevent countries from doing that.”

Mr Winder added: “Any tax change would require a certain level of institutional support to ensure that those taxes are  collected on a timely basis. Due to the fact that we have relied on tariffs for so long we haven’t developed that institutional control to ensure that we have the necessary controls in place so that all taxes are being collected.

“We haven’t always dealt firmly with individuals and corporations who continuously owe the Government taxes to the tune of thousands and thousands of dollars. Any new tax system we decide to implement would only be adequate and effective if we ensure that those who are supposed to pay actually pay.

“To add to that, whatever new system we put in place, we will have to take into consideration the possible leakage that could come about, and ensure that we deal with the possible weaknesses in our system that would result in a considerable amount of those revenues not being collected. If not, then we would not be able to take advantage of those changes.”