The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamas Insurance Association's (BIA) chairman yesterday urged the country not to lose sight of 'the bigger picture' in using tax reform to shed its 'tax haven' label.

Emmanuel Komolafe told Tribune Business that while corporate taxation may not be necessary to escape the European Union's (EU) 'blacklist', the Bahamas needed to look beyond this and examine such reforms as a means to position the financial services industry and wider economy to withstand future international regulatory assaults. Speaking after a seminar given by John Riva, KPMG's head of tax for its 'islands group', Mr Komolafe said he agreed with much of what was said, but added that the Bahamas' EU response needed to be "underpinned by a bigger vision".

Acknowledging that the Bahamas might struggle to achieve its long-term goals before the EU's self-imposed compliance deadline of December 2018, Mr Komolafe said: "I'm not sure nine months is enough to carry out comprehensive tax reform.

"Comprehensive tax reform has to tie in with a strategic plan for the country. We cannot always be reactive, so if there is another 'blacklist' or changing international standard we have to develop a model that withstands the test of time.

"The sustainability of the financial services industry and economy as a whole must be the driving force, and not necessarily the motivation to get off an adverse listing."

Mr Komolafe's views align with those of former Bahamas Financial Services Board (BFSB) chairman, Michael Paton, who earlier this week told Tribune Business that the imposition of a low-rate corporate tax might be necessary to move this nation from 'offshore' to 'mid-shore' and out of the EU/OECD 'line of fire'.

The BIA chairman said one element missing from yesterday's presentation was the need for the Bahamas to shed its 'tax haven' label in terms of outside perceptions, while also questioning Mr Riva's assertion that implementing a corporate tax is a "five-year project".

Pointing out that the Bahamas had implemented Value-Added Tax (VAT) in just two years, Mr Komolafe told Tribune Business: "In relation to the consideration of corporate taxation, the conversation has also been centred around the need to shed the 'tax haven' label.

"While it may not be necessary immediately, in the industry there's also discussion about shedding that tax haven label. As long as we have a zero or nominal tax regime, we run the risk of being labelled a 'tax haven'."

Mr Komolafe said tax reform, and the EU 'blacklisting' response, have to tie into a "bigger picture strategic plan" to grow the Bahamian economy and financial services industry.

"This all has to be underpinned by a bigger vision for financial services going into the future," he argued. "What do we want to be known as, how do we grow this industry rather than just deal with attacks and survival. We want to look beyond that.

"When we come off this 'blacklist', then what? What is the strategy? What is the plan? Are we going to take the myopic view of getting off this list, or take the comprehensive approach which is tax reform?

"We may just be focusing on coming off this list, and meeting the requirements of the EU, rather than comprehensive reform, which will be a squandered opportunity. We can't just look at the issue of tax reform to get off this 'blacklist'."

Suggesting that the Bahamas' approach may be "too narrow", Mr Komolafe said fiscal policy was key to encouraging the development of a country's economic plan and vision, given that it could be used to incentivise certain industries, activities and behaviours.

"Changes to a tax system should not be ad-hoc or spontaneous," he said, adding that the Bahamas needed to implement "what works best for our economy".

"Key considerations in the discussion of changes to our tax system should include rebranding of the Bahamas as an IFC (international financial centre); encouragement of entrepreneurship and industries; implications for accession to the WTO and the modernisation of the existing system.

"A comprehensive tax reform exercise, which results in the creation an effective, efficient, equitable and progressive tax system, should be the ultimate goal of the Government. There is, however, the possibility that the Government will focus solely on the December 31 EU deadline on the premise that there isn't adequate time to take such a holistic view."

Mr Komolafe added: "The sentiment exists among Bahamians and residents that the overall tax burden in the Bahamas is already high with multiple taxes, fees and levies, albeit we don't seem to receive credit for this reality from multilateral agencies.

"Hence, tax reform in the Bahamas should not result in an increase in the overall tax burden on Bahamians. Additionally, the overall net effect of this reform should not complicate the ease of doing business or increase the cost of doing business in the Bahamas for Bahamian businesses."

Mr Komolafe added that corporate clients typically expected "some level of taxation" wherever they operated, reiterating that escaping the EU's 'blacklist' "cannot be the sole motivation for tax reform".