The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading businessman yesterday backed the Government’s move to “hit the banks hard” with new and increased taxes, arguing that the Canadian-owned institutions had helped to bring this upon themselves.

Dionisio D’Aguilar, the former Bahamas Chamber of Commerce president, told Tribune Business that Bahamas-based commercial banks seemed to be “disproportionately” under-taxed compared to other industries.

And he argued that the Canadian-owned institutions - Royal Bank of Canada (RBC), CIBC FirstCaribbean International Bank (Bahamas) and Scotiabank - had been “exceptionally poor” in allowing Bahamians to buy into their local subsidiaries as shareholders.

Unveiling the 2013-2014 Budget, Prime Minister Perry Christie unveiled plans to implement a Business Licence fee on the Bahamian commercial banking sector equivalent to 3 per cent of their annual gross revenue.

Currently, the commercial banks pay no business licence fees, only asset-based fees, to the Government, and Mr Christie said the increased revenue take would help to finance the operations of Bahamian financial services regulators.

Other domestic institutions, such as credit unions and insurance companies, will be exempt from the 3 per cent Business Licence fee, according to the Budget communication.

At the top-end, an indication of what the Government could earn from this fee can be gleaned from CIBC FirstCaribbean International Bank (Bahamas) 2012 financials.

The bank generated $167.91 million in ‘interest and similar income’ last year, and an operating income of $171.975 million. A 3 per cent tax on either of these would generate between $5.04 million and $5.16 million for the Treasury.

Similar levies would likely be earned from Royal Bank of Canada and Scotiabank, and adding in the three Bahamian-owned institutions - Commonwealth Bank, Bank of the Bahamas International and Fidelity Bank (Bahamas) - and the Government could be looking at collecting anywhere from $20-$25 million annually from this new revenue stream.

Top bankers yesterday largely declined to comment on the Government’s Business Licence fee plan, saying they were still digesting the news and had to consult at the Clearing Banks Association (CBA) level.

Ian Jennings, Commonwealth Bank’s president, said he was hearing the Business Licence fee plan for the first time when contacted by Tribune Business.

Acknowledging that the Government had “limited possibilities” when it came to increasing revenues, he added: “The indication’s been that they were going to look at the banks to increase their tax base.”

It remains to be seen how the commercial banks respond. Given that the 3 per cent levy will eat into profits, there is every possibility they could seek to recoup these funds by imposing new levies and charges of their own on Bahamian borrowers.

Meanwhile, the Government’s decision to raise the Stamp Tax rate from 1.5 per cent to 5 per cent on dividends/profits being repatriated out of the Bahamas looks suspiciously like it is targeted at the Canadian-owned banks.

As a gauge of its impact, Tribune Business applied the two rates to Scotiabank (Bahamas) $33.049 million net income for 2012.

Not all of that sum would have been taken out of the Bahamas for repatriation to Canada or elsewhere in the Caribbean, but if it was, at the 1.5 per cent rate, Scotiabank would have paid $495,735 in Stamp Duty.

But, at the higher 5 per cent rate the Government is looking to introduce from July, this figure would more than triple to $1.65 million.

While the Canadian trio are arguably the most profitable businesses in the Bahamas, the move will also impact all foreign-owned companies - especially those in the hotel sector, plus companies like Commonwealth Brewery, which has a majority foreign shareholder in Heineken.

The Government will have to be careful this does not deter foreign direct investment, as the Stamp Duty on profit/dividend repatriation is effectively a tax on success.

Mr D’Aguilar, meanwhile, acknowledged that the Government was “hitting them [the commercial banks] all over the place”.

Still, agreeing that the sector had been under-taxed for years, he added: “I always said it seems that the most profitable companies in the country were paying a disproportionately low amount of tax compared to normal commercial businesses.

“By the time you factor in import duties, Business Licence fees and real property taxes, as a proportion of revenue and income, commercial businesses were paying a much higher rate of tax than the commercial banks, which were - and still remain - the most profitable sector of the economy.

“Normal businesses pay a Business Licence on their revenue, and I don’t see why banks shouldn’t.”

As for the increase in Stamp Duty on repatriated dividends/profits, Mr D’Aguilar suggested this was justified due to the lack of greater Bahamian ownership in the Canadian-owned institutions, and their failure to reinvest more of their profits in this nation.

There has been some attempt to generate Bahamian ownership, with FINCO, Royal Bank’s mortgage arm, enjoying 22 per cent local ownership, and CIBC FirstCaribbean International Bank (Bahamas) being owned 5 per cent by Bahamians.

However, Mr D’Aguilar charged: “FirstCaribbean, Royal Bank and Scotiabank have really made an exceptionally poor effort to make Bahamians shareholders in their institutions.

“Because they have failed to do that, I think the Government is right to increase the tax on the profits they make from the Bahamian people and take out of the country.”

Noting that dividend payments to Bahamian shareholders, or increases to capital bases (retained earnings) would not be impacted, Mr D’Aguilar added: “Given their significant size in our small economy, it seems ludicrous they would take so much profit out or send it to Canada, Barbados or Trinidad for tax purposes.

“I always thought it was a mistake by governments past not to make them sell shares to the Bahamian population. The fact they’ve never made an effort to leave more of their profits in the Bahamas is unacceptable, and I have no problem increasing their taxes to penalise them for that.”

Banks and trust companies in the international (offshore) sector will also seen an increase in their fees, phased in over two years.