By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Bahamian companies face an effective corporate tax rate that is equivalent to almost 34 per cent of their profits, the World Bank’s ‘ease of doing business report’ has calculated.
In an assessment that undermines the notion that the Bahamas is a ‘no tax’ or ‘low tax’ jurisdiction, the report said Business Licence fees accounted for nearly two-thirds of the corporate tax burden.
The World Bank document calculated that Business Licence fees, on average, accounted for a sum equivalent to 22.02 per cent - more than one-fifth - of a private company’s annual profits.
The private sector has complained, and demanded reform, of the Business Licence fee structure for years, arguing that it is an unfair burden for many firms to bear given that it is based on top-line turnover - not profits.
As a consequence, companies such as food stores and gas stations, which have high turnover and low margins, face a much higher Business Licence fee burden than high margin/low turnover service providers such as small accounting and law firms.
Many companies are also railing against having to pay Business Licence fees that are greater than their annual profits.
The World Bank report also showed that companies pay a sum equivalent to 6.32 per cent of their profits in National Insurance Board (NIB) and social security contributions, with Stamp Duty and real property taxes coming to 6.32 per cent and 1.58 per cent, respectively.
The findings given an insight into the total tax burden faced by Bahamas-based businesses, much of which is indirect and therefore often ‘missed’ by the general public.
Combined with high utility, labour and other costs, the near-34 per cent tax rate highlights how many companies are operating under an unsustainable cost burden, further impeding the Bahamas’ economic competitiveness.
The 34 per cent ‘corporate tax’ rate, though, was not a factor in the Bahamas’ falling 72 spots on the ‘ease of paying taxes’, from 22nd in the world to 95th.
The World Bank report blamed this on the country’s implementation of Value-Added Tax (VAT), which has effectively made the private sector the Government’s tax administrators and collectors, adding massively to the bureaucracy and ‘red tape’ many in the business community face.
“For the average business person, VAT has become an albatross,” K P Turnquest, the Opposition’s finance spokesman, told Tribune Business.
“Not only is it complex to co-ordinate for some businesses, particularly for those that are not tech savvy and may not necessarily keep good records, because they are ‘Mom and Pop’ shops, it’s also the cost of having service providers come in and do this for them, and documents to support that.
“All this takes time away from the operations of the business.”
The World Bank report said Bahamian businesses spent an average of 157 hours per year, the equivalent of almost 20 working days, dealing with VAT calculations, collection, filing and payment remittance.
However, Robert Myers, a principal with newly-formed civil society group, the Organisation for Responsible Governance (ORG), said the time spent on VAT by his Caribbean Landscape company and its two affiliates, was “easily more than that”.
He added that he had hired one person only to deal with VAT, meaning that they were spending some 2,080 hours per year on the subject between the three companies, based on 52 weeks per year and a 40-hour work week.
Mr Turnquest, meanwhile, said requirements such as Tax Compliance Certificates (TCCs) were further adding to the bureaucratic burden faced by the private sector, and making it harder - not easier - to do business.
“The ease of getting a business started today is certainly a lot more difficult than it has been,” he told Tribune Business. “It’s not just anecdotal; it’s evident.
“Things like getting TCCs and having to go to multiple agencies, and you’re then bounced between agencies from time to time. And the Government won’t pay you without a valid TCC. All of which costs time and money.
“It’s [the fall in the ease of business ranking] not surprising from that point of view, because we’ve not made any progress in reducing red tape.”
Comments
observer2 8 years ago
Why would anyone in their right minds want to open a new business in the Bahamas and invest hard earned money when it is so difficult to get anything done with the government.
But even when you get your business set up the electricity costs (3 times higher than Florida), the load shedding/generator cost and the damaged electrical equipment make it almost impossible to manufacture anything for a profit.
Lets face it, BEC will never be fixed, it is truly the Bahamas' Achilles heel. It needs a completely brand new energy efficient gas power plant and sensible management - it will cost $500 million. Then BEC needs to write-off $450 million in existing debt. Add to that another $50 million to fix the out dated electric grid for a total cost of $1 billion. It can't be raised, the country is essentially at its debt limit.
Every day the electricity goes off.
MonkeeDoo 8 years ago
We still exist in a parochial type town where you have to physically go everywhere and when it comes to Government ( Road Traffic ) you may have to go to two other places first. Passport Office, NIB. Of course it lends itself to buying the clerk a lunch or dinner ( corruption ) to overlook the missing docs. Everything Government does today is geared this way.
BaronInvest 8 years ago
Stop comparing the Bahamas to a 1st World Country. It's not, it's a 3rd World Country - no equal rights between men/women, no public health insurance, bad education system, political leadership full of fools who threaten investors, high crime and murder, non-functioning powergrid. And in addition to that there is denial of responsibility everywhere. It's governed by short-sighted fools who try to put as much into their own pocket as they can - and nothing is going to change. Bahamians are way to passive
In my country these people would be sitting in jail already for a long time - here they get re-elected.
Well_mudda_take_sic 8 years ago
Prior to independence the effective tax rate on Bahamian businesses was about 11%. Since then, under the successive spend-thrift corrupt administrations of Poodling, Hubiggity and Vomit that rate is now more than three times greater, and far less than what is needed to start paying down our unsustainable level of national debt. We can be rest assured we will not hear a peep out of Crooked Christie or his puppet Halkitis about this incredible fact that is daily causing more and more small, medium and large Bahamian businesses to have to close their doors forever.
happyfly 8 years ago
All I know is in 2008 my company made a net loss and Business License Department thought it was perfectly OK to charge me $12,000 for next year.......uuuum what does that add up percentage wise ? So I closed the company, put 15 people out of work and would never go in to business here again
SP 8 years ago
..................... PM Perry Gladston Christie, Our Very Own Dumb Jackass .......................
What a total, utter disappointment this asinine idiot turned out to be!
empathy 8 years ago
Good to see this issue being discussed as it is a terrible blight on the Bahamas. When it comes to opening or conducting business in this country using the term "ease of doing business" is laughable at best and better described as "tragic".
Unfortunately, blaming this fact on VAT misses the point and needlessly adds a new front that threatens to politicize any process designed to fix it. The Bahamas has been a lousy jurisdiction for doing business for decades and everyone in business and law has known this, but because this inefficiency and "Red Tape" benefits certain professions rather than the businessperson the necessary changes can't be made.
We need an approach much like that of Hong Kong, where a business can be opened in "one business day"! We should approach experts from that jurisdiction (or Singapore), just like we consulted the New Zealanders about their expertise in their GST to help us develop an ease of doing business program that would be the envy of the world. However to accomplish that we'd first have to strip power from those who have held us back for these many decades, an action not likely to come from our politicians...and even less from a people hell bent on abdicating all of their rights and privileges.
birdiestrachan 8 years ago
Neil could you please write how the Bahamas taxes compares with other countries.??
birdiestrachan 8 years ago
In America a sales tax is added to purchases. Does America have the same problems stated by Mr: Myers?. and is Mr: Turnquest planing on repealing VAT. ?
sheeprunner12 8 years ago
Then there are other "hidden taxes" on the private sector ................. bribes paid to government department agencies for services ............ employee pilferage, inefficiency and wastage ................ time lost in waiting on slow internet, BEC, bank lines, and in street traffic etc
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