The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Democratic National Alliance’s (DNA) leader has pledged to reform the Business Licence fee if elected to office, so that companies do not pay more in taxes than they earn in profits.

Branville McCartney told Tribune Business that the World Bank’s ‘ease of doing business’ report had exposed as “a fallacy” the notion that the Bahamas was a ‘low tax’ or ‘no tax’ jurisdiction when it came to conducting business.

The report, released last week, calculated that the average Bahamian company paid to the Government, in taxes, the equivalent of more than one-third of its annual profits - some 33.8 per cent.

It said Business Licence fees accounted for nearly two-thirds of this corporate tax burden, requiring business to on average pay a sum equivalent to 22.02 per cent - more than one-fifth - of their annual profits.

Several businesses, primarily in industries that are price-controlled or generate high turnovers with low profit margins, subsequently told Tribune Business that this was a major under-estimate.

One company executive, speaking on condition of anonymity, said their annual Business License fee was now equivalent to 120 per cent of annual net profits - thereby ensuring they pay much more to the Government than their shareholders earn in any dividends.

“You could earn $1 million in gross revenue and still not make a profit,” Mr McCartney told Tribune Business, “which causes your business to suffer even more.

“We’re going to change that. You’re not going to pay Business Licence fees on the gross; you’ll pay it on the profit.”

Some may argue that the DNA’s prospects of being elected to government in the upcoming general election are slim, but Mr McCartney continued: “By the time you take into consideration the Business Licence fees you pay on the gross, and the VAT you pay, businesses are paying more in taxes than the earnings and profits they make.

“The bottom line is, for the most part, you are taxing them out of business. Some businesses may make a substantial amount of gross but minimal profit. Many businesses are holding on by the skin of their teeth. We’re suffering.”

The private sector has complained about, 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 mar gins, face a much higher Business Licence fee burden than high margin/low turnover service providers such as small accounting and law firms.

The World Bank report, meanwhile, 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.

Mr McCartney said the ‘ease of doing business’ report’s corporate tax burden findings showed the promotion of the Bahamas as a ‘low tax’ jurisdiction is “a fallacy”.

“It shows us that we are being taxed out of business, and that keeping our doors open has become harder and harder because of the taxes levied against us,” the DNA leader, himself a businessman, told Tribune Business.

“It talks about VAT, but with so many taxes to pay, and with such a significantly high percentage of income going to these taxes, it’s really unrealistic for businesses to grow in this country or new businesses to be developed when we are taxed the way we are.

“Unless we find a way for these taxes to be reduced, and the ease of doing business to be enhanced, and look at doing things that ensure businesses can survive, be sustained and make a profit, we will continue to slip.”

The findings in the World Bank report 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.

“We pay taxes on taxes,” Mr McCartney told Tribune Business. “We pay taxes when goods come in from the US; we pay duty and we pay VAT on that. We pay taxes on taxes. We’re double taxed as a country.”

He warned that the Bahamas would slip further from its present 121st spot, out of 190 nations, in the World Bank’s ‘ease of doing business’ rankings unless it reversed course and made both easy - and difficult - decisions to reform.

“We haven’t had any new foreign direct investment coming to this country,” Mr McCartney added. “That is a telling sign right there. People are looking elsewhere.

“Someone coming to this country, they want to know they can do business relatively easily, and not have to wait weeks to get the licenses and permits that are necessary.

“We have not taken into account what is needed to make doing business easy. The bottom line is people are looking elsewhere.”