The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance's top official yesterday "categorically rejected" fears that the new business licence regulations are the first step towards implementing a corporate income tax regime.

Marlon Johnson, the financial secretary, told Tribune Business that "no decision has been made" on any potential taxation reforms given that Deloitte & Touche UK's study on possible alternatives to the business licence regime is not yet complete.

He spoke out amid growing private sector and accounting industry suspicions that the increased information demanded by the new regulations, which will apply for the first time to 2019 business licence filings, is akin to a "trojan horse" paving the way for corporate income tax's introduction.

Philip Galanis, HLB Galanis & Company's managing partner, told this newspaper that the regulations would impose a "really appalling" cost and bureaucratic burden on multiple businesses that was unnecessary to confirm whether they were paying due business licence fees.

He branded them an "insidiously surreptitious attempt" by the Government to breach legitimate corporate privacy and, by mandating the provision of "certified" bank statements, determine via stealth whether it will earn sufficient revenues from imposing a corporate income tax.

Mr Johnson, though, rejected such suspicions and fears, telling Tribune Business: "I wouldn't know where that came from. No form of decision has been made on any adjustments to the business tax regime. There have been no leanings, no indications of the sort. I want to categorically reject any suggestions to that effect."

The Financial Secretary added that a Tax Committee, featuring representatives from the Bahamas Institute of Chartered Accountants (BICA) and Bahamas Chamber of Commerce, as well as other private sector stakeholders has been formed to "work along with Deloitte" on its study of the country's taxation structure.

Groups not represented on the committee have also been consulted, Mr Johnson said, with the body working to develop "some recommendations for policymakers' consideration" that have yet to be submitted.

As for Deloitte UK, it is expected to provide the Government with an update on its taxation study imminently. "We're at the point where they should be presenting to the Ministry of Finance soon, giving us an update," Mr Johnson added.

"That will happen in a matter of weeks, and once the Ministry sees it and makes a determination, we'll decide whether it goes up to Cabinet or more work is needed."

A key component of Deloitte UK's study is to evaluate options for replacing the existing turnover-based Business Licence fee with a tax or levy that is less distortive, with a profit-based fee or corporate tax among the main alternatives.

This objective, coupled with the additional reporting requirements set out in the Business Licence regulations, has ignited concerns that the Government may have already taken a decision without informing the private sector - a notion that was refuted by Mr Johnson.

The amended regulations, which were put into effect almost unnoticed on May 30 amid the general outcry over the Budget's VAT hike, require companies with an annual turnover of $10m or more to provide audited financial statements that will confirm their prior year earnings.

But for those businesses earning between zero to $10m, the regulations stipulate that "a financial statement" confirming their turnover must be supplied to the Department of Inland Revenue (DIR). This, though, must also be accompanied by "a certified bank statement" covering each bank account held in the business's name and any other accounts "that are used in transactions" on its behalf.

Tribune Business understands that the most Bahamas' most senior accountants, namely managing partners at both small and large firms, are interested in banding together to seek a meeting with K P Turnquest, the deputy prime minister, in a bid to persuade the Government to alter course.

Mr Galanis yesterday confirmed there had been an industry "reaction" to Mr Johnson's address at last week's BICA "accountants week" conference, and said of the regulations: "I think this is really appalling.

"My hunch is, and I asked him [Mr Johnson] to confirm or deny this: The Government is considering the implementation of corporate income tax, which is why they need these financial statements and bank statements."

Many accountants and private sector executives view the new regulations as "overkill" and an incursion into corporate privacy, especially since Business Licence fees are currently calculated based on just one indicator: Top-line turnover. Accountants verify this, with businesses submitting such attestation along with their filings and payment by end-March every year.

"I believe the real reason for the Government's intrusive incursion into private businesses is that it intends to assess the viability of imposing a corporate income tax in The Bahamas," Mr Galanis told Tribune Business. "Why else would the government need information relating to the net income of businesses, both large and small?

"Why else would the government require certified bank statements from such businesses to verify whether companies are reporting their correct incomes, using certified bank statements that will not necessarily corroborate a company's reported revenue?"

Mr Galanis argued that it was "an insidiously surreptitious attempt" by the Government to calculate how much revenue a corporate income tax will generate. He urged it to disclose its true intentions and motivations, while warning that Bahamian businesses will likely be concerned about the potential for any data provided to be leaked into the public domain.

Rick Lowe, a director of the Nassau Institute think-tank, voiced similar suspicions to Mr Galanis about the motivation for the enhanced Business Licence reporting and verifications.

"Other than the pot calling the kettle black about 'shoddy accounting'," he said, referring to Mr Johnson's justification for the move, "what could be the motive for government forcing businesses to provide audited financials with their Business License application?

"Could it be they want to measure what a new corporate tax will bring upon implementation? Maybe it should not be surprising this legislation was forced through Parliament without debate."

Mr Lowe added: "What happened to the Green Paper on this subject? In fact, what has happened to following Parliamentary procedure with Bills? Successive governments have now become like American presidents with their use of Executive Orders to circumvent the democratic process.

"It is very discouraging when a political party promises accountability while campaigning only to reverse course on several fronts once elected."

Mr Galanis, meanwhile, said the Bahamian accounting industry was resisting regulations that would deliver more work and fee income for the profession "because we feel it's an onerous and enormous expense for companies they need not incur.

"We'd prefer to forego any gain in terms of additional fees to let companies not incur additional costs," he added. "There will be an enormous cost for companies not presently audited who now have to submit their books to audit."

While Bahamian banks and trust companies, insurance companies and other industries subject to statutory regulation all must subject their financials to annual audits, Mr Galanis said there were numerous privately-owned entities with annual turnovers exceeding $10m who currently do not have to undergo such a rigorous examination.

And, while Mr Johnson had justified the Government's stance by arguing that some Business Licence filings "cannot be trusted" because accountants are under-certifying revenue earned, Mr Galanis said accessing bank account information would bring it no closer to fool-proof verification.

"The bank accounts are not going to tell the story," he told Tribune Business. "A number of credits go through bank accounts that don't relate to revenue. It defeats the purpose, and you're going to create another expense for business.

"Banks are not going to do it for free. They will charge a fee for certification, and they don't issue statements any more; it's done online. It's an unnecessary expense that's being foisted on businesses that are already over-taxed."

Examples of transactions that do not comprise "revenue" are loan proceeds, dividend payments and capital expenditures.

Still, many in the private sector have long desired that Business Licence fees, which are projected to generate $101.207m during the 2018-2019 fiscal year, be replaced by a less distortive tax.

For its calculation on gross turnover is viewed as penalising high turnover, low margin businesses while favouring low turnover businesses that are more profitable. Tribune Business has received complaints from numerous companies that they pay more in annual Business Licence fees than they do in profits, and/or that the fees push them into losses.

Michael Maura, the Chamber of Commerce's chairman, told Tribune Business before the 2018-2019 Budget that "a real hard look" was needed at reforms to the Business Licence fee structure, although nothing was announced then.

Mr Turnquest, the Deputy Prime Minister, told Tribune Business in a recent interview that the Government is aware of the Business Licence fee's "unfairness" - especially where high turnover, low margin businesses such as food stores and gas stations were concerned.

"We're very cognisant, if you will, of the unfairness of the tax," he said of the Business Licence. "This is one of the reasons we are having the study done to see how we can make the tax more progressive.

"It is an important consideration for us. This was one of the things we promised in our campaign; to look at the fairness of the Business Licence fee, particularly as it relates to high turnover, low margin businesses.

"We believe, fundamentally, that no tax should be so burdensome that it creates a negative cash flow and puts businesses into a loss. Whatever changes we make have to be incremental and be well thought-out."