A FORMER financial services minister believes it is “probably inevitable” that the Bahamas will have to introduce some form of low-rate income tax, warning: “We’re not in the clear yet.”
Ryan Pinder told Tribune Business that while the entire financial services industry had “exhaled” at the Bahamas escaping the European Union’s (EU) blacklist last week, it knows “a lot of work needs to be done” to meet both its demands and those of the Organisation for Economic Co-Operation and Development (OECD). Mr Pinder, who held the financial services ministerial post from 2012 to end-2014 under the former Christie administration, credited the current government with “a significant accomplishment” for keeping the Bahamas off the ‘blacklist’, even though the EU’s own announcement said it had more to do with Hurricane Irma-related compassion.
However, he warned that the EU and OECD, together with the G-20 group of nations, were unlikely to ease the pressure intended to drive the Bahamas away from its current ‘zero tax’ platform and towards income tax implementation.
Mr Pinder argued that the Bahamas now needed to use the 12-month reprieve granted by the EU to demonstrate “measured progress” in complying with its demands, especially the structure of this nation’s taxation regime moving forward.
The now-Graham Thompson & Company attorney and partner added that should the Government decide to move in the direction of an income, or corporate income, tax, it needed to “fully think through” the impact on the overall economy and obtain “the widest buy-in possible”.
“I think it was a significant accomplishment by this government to ensure that we were not on the EU blacklist,” Mr Pinder told Tribune Business.
“Anybody would agree that being on the ‘blacklist’ would have adverse consequences for the industry and a disadvantageous impact for the country, having an adverse effect on correspondent banking and affecting our international trade and commerce.
“It was a significant accomplishment and one we exhaled about, but it doesn’t mean we’re in the clear. There’s a lot more work needing to be done,” he continued.
“It’s definitely an opportunity to exhale, but it certainly isn’t the end of the race, and we have to get to the next stage. We can’t procrastinate and can’t do it by ourselves. We have to do it with the rest of the economy.”
The EU, in unveiling its 17-nation ‘blacklist’ last Tuesday, said it had suspended its assessments of the Bahamas and seven other Caribbean states to enable them to recover from the devastation inflicted by Hurricanes Irma and Maria.
The 28-nation group said it would resume “contacts” with the Bahamas in February 2018 to determine if it was in compliance with the three criteria used to designate ‘non-cooperative jurisdictions’. A final decision on this nation and the others will be taken before year-end 2018.
Mr Pinder said the Bahamas’ main difficulty in complying with the EU’s demands is the absence of any form of income tax - personal, corporate or otherwise.
The absence of such taxes, he explained, is treated as a ‘harmful tax practice’ by both the EU and OECD. The latter is especially significant, because its initiatives provide much of the foundations for the EU’s ‘blacklisting’ criteria.
“The principle behind that is you have a tax system, it’s recognised - meaning income tax - and no preferential regimes behind that. There’s no ring fencing,” Mr Pinder said of the EU criteria.
Tribune Business has previously reported that last week’s passage of legislation to facilitate the multilateral approach to automatic tax information exchange, and the Government’s signing on on to the Mutual Administrative Assistance in Tax Matters convention this week, will bring the Bahamas into compliance with the OECD’s Common Reporting Standard (CRS).
This, in turn, will enable the Bahamas to meet the first of the EU’s three criteria on ‘tax transparency’. However, meeting the latter’s other two conditions are made more problematic for this nation precisely because it has no type of income tax regime.
Meeting the EU’s third condition requires the Bahamas to comply with the OECD’s Base Erosion and Profits Shifting (BEPS) initiative.
This aims to prevent tax avoidance by multinational companies, who using legal and creative mechanisms to shift profits from higher tax to low tax jurisdictions, enabling them to enjoy significant savings while eroding the tax bases of certain countries.
The Bahamas has already signalled its intent to comply with BEPS by adopting a ‘minimum’ four of 15 actions. However, one of the ‘actions’ it plans to implement is ‘no harmful tax practices’, and both the OECD and EU consider a corporate tax rate of less than 10 per cent to be a ‘harmful tax practice’.
“We’re experiencing the international pressure on income tax from a variety of different directions,” Mr Pinder told Tribune Business. “I think it’s probably inevitable, but it [its introduction] has to be measured, well thought-out and, to the extent possible, get the widest possible buy-in.
“It’s not something that should be rushed into. I’m not sure what the Government’s timeframe is going to be, but over the next 12 months we will have to show measured progress with respect to what we’re doing about our tax regime. My guess is we can’t get away with anything less than a 10 per cent rate.”
Mr Pinder is thus the first senior figure, political or otherwise, to suggest the implementation of some income-type tax is likely. K P Turnquest, the deputy prime minister, previously acknowledged that the Bahamas “may have to look” at it, although he stopped well short of suggesting this was likely to happen.
Compliance with BEPS is the third of the EU’s three ‘blacklist’ criteria, and Mr Turnquest last week said the Government had made proposals to the OECD on how it could achieve the minimum standard without implementing a corporate income tax.
Yet even more troubling is the second and final EU ‘standard’, which requires countries to provide ‘fair taxation’. This is tied directly to BEPS compliance, and is highly subjective, meaning different things to different people, with many observers viewing it as undermining the sovereignty of individual nations to choose the tax system that best fits them.
Countries with ‘offshore structures’ that can be used to facilitate tax avoidance of the type BEPS is intended to counter will run afoul of this demand, meaning the Bahamas and other international financial centres (IFCs) may have to take further action to ward off the EU.
“There’s certain pressures with respect to the Bahamas being in a position to have to introduce some form of income tax, whether it be income or corporate, and how that is designed and structured,” Mr Pinder said.
“Any form of corporate income tax is going to affect the wider economy more than financial services. If only domestic-sourced income is taxed, that will not tax a lot of financial services, as it is mainly foreign sourced. There’s a lot of thinking through, and a lot of complexities are involved.
“Then there’s cultural acceptance, as we’re not used to an income tax, keeping track of deductions and expenses, and what’s attributable to personal and corporate. We’re going to have to be very sensitive,” he continued.
“If the Government goes that way, and certainly the external pressures are there to push is in that direction, a lot of thinking and consultation will have to go into that, and a lot of understanding of how that affects the private sector.”
With the EU frowning upon ‘ring fencing’, namely the maintenance of separate tax regimes for foreign and domestic interests, Mr Pinder said areas such as Business License fees would need to be evaluated.
“We would have to take a real good look at how the regime is structured currently and get rid of the more ‘ring fencing’ elements,” he added of Business Licenses.
Mr Pinder’s comments add to an already-vigorous tax reform debate within the financial services industry, as many sector players believe shifting from a ‘no tax’ to a ‘low tax’ platform would enable the Bahamas to better target corporate/institutional business, enter into investment-type treaties and shed the ‘tax haven’ label’.
Tanya McCartney, the Bahamas Financial Services Board’s (BFSB) chief executive, previously told Tribune Business that the Bahamas needed to “seriously look” at implementing a low-rate corporate income tax - a suggestion also made by the International Monetary Fund (IMF) earlier this year.
However, she and others have repeatedly said that such reform must take into account the wider economy’s interests and be done for the Bahamas’ benefit - not the OECD’s and EU’s.
Many observers believe that forcing the Bahamas to introduce an income tax has been the OECD’s ultimate objective all along, thus undermining its competitiveness in financial services.
Comments
proudloudandfnm 6 years, 11 months ago
We must never allow the shit ass Bahamian government to spend and waste us in to an income tax situation. We have to fight against it. Demand our government reduce waste and spending instead. Right now we are drowning in taxes and fees and Nassau's electric goes out every day. Freeport is essentially closed down. No more revenue for our eternally lousy government! If anything cut taxes and make our government operate only with the resulting revenue. We must stop acting as though we fet value for our tax dollars. We do not. We never have. Stand up Bahamians and fight this garbage...
Well_mudda_take_sic 6 years, 11 months ago
This Pinder arse has for years now been an agent of the U.S. government planted in our midsts to undermine the sovereignty of the Bahamas by hindering the Bahamian people's ability to benefit from the development of their own natural resources. Bahamians should also know that Graham Thompson & Co., the law firm in which this Pinder arse is now a partner, counts the U.S. government among its largest clients, if not its single largest client.
sheeprunner12 6 years, 11 months ago
Why does KPT not carry out a comprehensive tax review and reform like Trump??????
Dawes 6 years, 11 months ago
If they bring in income tax it will start off low like 5% and initially only be for people earning large amounts (say over $50,000). All sounds good, however with the way our Governments spend within 10 years it will be at 20-30% and starting at $15-20,000. I wouldn't mind paying it if we got value for our money, but if it is to to keep the standards we have now, then no that's not acceptable. Unfortunately i know that it will happen one day and when it does i will still be breaking my car up going to work as the extra money will be wasted.,
OldFort2012 6 years, 11 months ago
I see absolutely no problem. They want to fk with us? We will fk with them. Let's introduce 20% corporate tax, just like in the USA. Everyone will just report losses and since no one in government knows how to read a balance sheet or earning statement, there will be no problem. It will be a voluntary tax with no enforcement. Everyone happy.
sheeprunner12 6 years, 11 months ago
The rich person in The Bahamas (earning over $100,000) does not pay his/her fair share of taxes ........... The average Bahamian makes less than $20,000 and has to pay fuel tax, license tax, VAT, stamp tax, customs duty etc. .......... What "extra tax" does the rich person pay???????.......... Sorry, I forgot - the rich pay "real property tax" (?) ........ BOL
Dawes 6 years, 11 months ago
I agree, this is why i think they will introduce it at a high rate as people won't mind. However knowing how our Governments have all squandered the revenue they make it won't take long before they reduce the rate income tax starts, then eventually a large majority will be paying it.
The_Oracle 6 years, 11 months ago
Love the "fair share" argument. Fair to whom? According to whom? And when they come for your money once the wealthy have left? What isn't fair is successive government administrations pissing ever increasing tax revenue away. There is no competency in Bidding, actual quality of construction or proper administration of end use. Zero decent upkeep on existing infrastructure.
sheeprunner12 6 years, 11 months ago
This country does not have a funded welfare program ...... nor does it have a well-funded education assistance program (aka education loans) ......... So how does a Bahamian multi-millionaire contribute to the public education and social services plans for the bottom third of the society?????? ......... Leave it up to his/her generosity????? ....... Do they ALL write a generous check to the Treasury every year to assist with the poor, disabled, and the indigent??????? .......... PAY MORE TAXES.
Dawes 6 years, 11 months ago
All true, however the inequalities in The Bahamas are too great and it is only right that those who are richer pay more, even if they do not benefit as much. Income tax is the easiest way of doing this. One hope would be the people demand more accountability on Government if they have to pay more.
Sickened 6 years, 11 months ago
Income tax should only come into effect at the same time our government structure is dismantled and we no longer have government officials in a position to squander it (i.e. never!). I keep saying that our country would run MUCH more efficiently without a government. We may not get richer but we sure as hell won't get any worse.
OldFort2012 6 years, 11 months ago
Guys, we are not talking of PERSONAL INCOME TAXES. The EU does not care about that. They care about CORPORATE INCOME TAXES. For companies, not individuals.
jusscool 6 years, 11 months ago
And wouldn't this have a trickle down affect?
Dawes 6 years, 11 months ago
Thought they discussed both. Corporate Tax should have been done a long time ago as Business license needs to be got rid of.
concerned799 6 years, 11 months ago
When is everyone going to figure out the "blacklists" will never stop? You give into one, another appears... Its a treadmill you can never get off. So why start in the first place?
hrysippus 6 years, 11 months ago
If government want to tax us more, . ...... Will it drive rich expats from our shore? . .... Less money will be changing hands, ... ... Less VAT collected throughout our lands,, ,,,,,,,, And those who cannot move away, . ......... Can not put by for a rainy day, . ........ ... Cos Inland Revenue will take so much, . ....... We'll be left with empty purse to clutch. ....... ...... But pensions paid to Pindling's wife, .. .... Will Leave her living "Riley's Life". Hubert and Perry's pension's so high,. ..... .... hey'll still be rich years after they die.
John 6 years, 11 months ago
The sh!t that many don't realize is they have mostly white, foreign guys running the Department of Inland Revenue already. And more likely than not they are planted by the feds to see exactly what is going on in this country and who owns what. They call you in saying," Mr John Doe, we have six pieces of property listed in your name. Can you please come in to verify that they are yours." And when you go in they never had six properties listed in your name but they now want copies of your passport and national insurance card. Then they begin to hassle you to pay any back taxes you may owe. So now they maybe are setting up a system to garnish your wages of bank accounts for back taxes. And their system is so out of date, many of the properties they have listed, especially in the inner city, no longer have structures on them or the buildings are delapidated and uninhabitable. And this will be a major problem the government will face when it tries to revive these areas. And if if any form of income taxes, corporate or otherwise, it will have to be a replacement tax and not a new tax. When VAT was introduced it was suppose to replace customs duties and stamp taxes and those taxes were to be eliminated completely. They were considered to be barriers to international trade. But the government chose to collect customs duties,and stamp tax in addition to the VAT. This pushed many Bahamians below the poverty line. It caused many businesses to become unprofitable and others to become insolvent. The main reason being that the cost of carrying inventory is too high. Another reason is because of our proximity to the US market and the ease of shopping online the tax loaded prices in The Bahamas cannot compete. And many businesses that did not properly adjust their prices found that they could not cover their overhead. More than half an average Bahamian's income already goes to government in some form of tax or fees. To increase that burden with another tax will create a nation of homeless people who cannot even afford to feed themselves.
OMG 6 years, 11 months ago
Here we go, usual times are tough blame the white foreigner. Get over it you have had many many years since independence to do your own thing. And it was the predominantly black PLP that has driven this country into Banana republic debt.
Sickened 6 years, 11 months ago
This can't be the same 'John' spouting religion all the time, can it?? Blaming the white man -what verse is that from again?
Dawes 6 years, 11 months ago
Umm isn't it wrong to not render unto Caesar what is his. So surely there should be no back taxes owed? If there no longer is a building on the property isn't this your responsibility to inform Government? Duties were going to be eliminated on most items when VAT was brought in, however VAT was going to be 15% to do this. This did not happen. Basically all you are doing is blaming everyone apart from yourself for the situation you find yourself in.
ashley14 6 years, 11 months ago
What a nightmare! The records need to be straightened out but amnesty for back taxes should be given. With records in this order they don't know who owes what.
TheMadHatter 6 years, 11 months ago
If 10% minimum income tax is required, then simply implement a 10% corporate and personal income tax but at the same time allow a VAT refund quarterly to individuals presenting a spending report. Credit card machines could easily be programmed to allow the swiping of the new NIB smart card to record the purchase amount. Auditors can inspect that businesses don't have more "swipes" than their sales totals....which would simply match their own VAT submissions.
So in effect this would nullify extra income tax payments in accordance with persons spending money in the economy.
Also, do not have any ceiling on income tax like they have with NIB.
Also every 6 months Govt can check out persons who have NIB smart cards but have zero purchases and find out if they are dead or simply working under the table.
It's not as complex as it sounds.
I would be happy to administer its implementation if asked.
ohdrap4 6 years, 11 months ago
gee you should get an RBC job.
if i send the grandson to get some condensed milk from the foodstore with cash .
i will work under the table, thanks. the Outspoken QC will protect me.
there should be no ceiling in income taxt, but rather , a FLOOR, if your income is below a certain amount, you do not pay.
mckenziecpa 6 years, 11 months ago
Ryan Pinder is not the only person touting income tax for the Bahamas in some form. The Bahamas needs to implement income tax reform even if the government doesn’t benefit from it. An income tax reform will move the Bahamas from a zero-income tax to a tax base even introduced at 5%.
If the government was to introduce income tax, this will be a good way of stealing from the middle class and rich and to help the underprivileged. If earned low income in the U.S., you get a refund, if you don’t get a refund, you will more than likely not have to pay taxes
Investors get credit in their home country when the country they are doing business with have an income tax base, mainly business income tax.
I have clients who live in other parts of the world who are also U.S. citizens that benefit from the tax regime from the country they domicile in.
Bottom line; the Bahamas needs some type of income tax, and I don’t mean tax the people into oblivion, but to avoid the blacklist. Blacklisting can futher erode the second pillar of the economy the financial service sector, subsequently putting a considerable amount of middle class out of a job.
U.S. Tax $20,000 Exemption generally three (4,0503) 12,150 Standard deduction generally three (6,3003) $18,900
Total Deduction $ 31,400
Net taxable income 0
Child tax credit per child (1,000 *3) $3,000 Low Income Credit (3,800) Other Credits (1,200)
The poor will take home (3,000+3,800+1,200) every year.
Gotoutintime 6 years, 11 months ago
Income Tax would be a joke---Nobody is paying their Real Property Taxes, their Power bills or their Water bills!! Income Tax---You've got to be kidding!!
MonkeeDoo 6 years, 11 months ago
We don't have many day traders here trying to hide profits or even defer taxation. The BIG money is accumulating in Dublin & Luxembourg. Someone in our offshore centers should explain to these nitwits that money in these centers is not here primarily for active investnent so much as privacy & security. They pay their taxes where they live and do business and what is left they bring to places such as here and invest in property which only makes money when it is sold. These guys are off their game. Send ALL of Apple's & Google & Facebook money back to USA if you are really interested in tax evasion / aversion. Don't ask us to pay for their bad judgement !!!
John 6 years, 11 months ago
The reason many Bahamians don’t pay property taxes is they don’t feel they should have to. Government already gets stamp tax and VAT when you purchase your property. Then they get over 40% customs duty and VAT on all the materials you use to build your home, plus 7.5% VAT plus national insurance on the labor costs. Then there are building permit fees and other incidentals that go to the government amounting to more than 50% of the cost of your home. No Bahamian should be required to pay property tax on an owner occupied home.
OMG 6 years, 11 months ago
They don't if its value is less than $250,000.
OMG 6 years, 11 months ago
The problem with implementing income tax is you will only be able to accurately enforce it with salaried persons such as government workers etc. How will you tax, builders, fishermen, Hatien gardeners-you can't.
Sickened 6 years, 11 months ago
So right! Only the hotel workers, bank workers and government workers will pay an income tax (i.e. the middle and upper middle classes). Everyone else will get a pass. Business owners will only pay themselves enough to cover their living expenses (some of which will surely go through their company's books as well - i.e. live in a company house, drive a company car). The middle class will again take on the majority of the tax burden... until they leave.
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