The Tribune

By Neil Hartnell

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must avoid becoming “the Last of the Mohicans” by ensuring foreign companies actually “benefit from paying taxes” here, a top accountant is arguing.

Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that this nation must shed “the selfish blinkers” and develop an innovative tax structure fit for the 21st century if it is to remain “a meaningful player in the global economy”.

Reiterating his belief that the consumption-based tax system in existence since the 1950s is no longer sufficient to maintain The Bahamas’ economic competitiveness, Mr Bowe called for the development of “a modern, progressive tax infrastructure” that would incentivise investors and companies rather than seeing them pay “no tax”.

Acknowledging that many remain opposed to paying an income tax in any form, whether personal or corporate, the BICA chief said a recent regional conference organised by the World Bank had shown how such structures could be used to encourage investment by the private sector in infrastructure projects.

He explained that private investors and companies who made a $50m investment in a public-private partnership (PPP) in Peru received a tax credit for an equivalent amount, while providing that country’s government with the expertise and attention to ensure the project succeeded.

Without such a tax structure, Mr Bowe said The Bahamas and its government had to instead rely on tax breaks and concessions as its contribution to PPPs as there was no ability to provide tax credits. He added that it was often difficult to measure whether this nation received value for money in terms of whether the “infrastructure contributed” matched the revenue foregone.

Calling for Bahamians to be “more open minded” when it came to tax reform, the BICA president argued that any changes should not simply focus on increasing revenues “but, more importantly, how we use tax infrastructure as an economic lever to promote or push growth and sustainability”.

“We have to take off the selfish blinkers,” Mr Bowe told Tribune Business. “We have become too complacent in the fact we believe the tax system we put in place in the 1950s is appropriate in the 21st century.

“I strongly believe that if we’re going to be a meaningful player in the global economy, we have to be far more innovative in our tax infrastructure. That has to be focused on not being a low or ‘no tax’ jurisdiction but being an efficient tax jurisdiction that allows for an equitable distribution of the tax burden and allows foreign companies to benefit from paying tax as opposed to paying no tax.

“Those days are gone. Being the Last of the Mohicans is not a smart move for The Bahamas. It’s about how we get to the framework of a modern, progressive tax infrastructure. We have to take the new frontier by the horns, and look at how we make The Bahamas a trailblazer in how we manage our fiscal affairs,” Mr Bowe continued.

“We’re small enough to do that, but have to be brave and bold in our decisions. We can’t shy away from things because we’re trying to please the electorate. We have to find ways to make it happen.”

The BICA president said The Bahamas’ current tax burden, where revenues are forecast to be around 20.1 percent of GDP this fiscal year and in the immediate future, was an acceptable ratio that needed to be maintained. 

Instead, he said this nation needed to “look at how to become more efficient in collecting that 20 percent and become more progressive” with a tax structure that imposed a more equitable burden on Bahamian society.

Even though VAT has replaced import duties as the government’s main revenue source ahead of the potential World Trade Organisation (WTO) accession, this has meant The Bahamas’ taxation model remains primarily a consumption-based one. As a result, lower income Bahamians are still spending a higher proportion of their income on taxes than those earning more.

Most nations rely on income tax, both personal and corporate, as their government’s primary source of revenue since it is viewed as a progressive levy directly linked to ability to pay. Those earning more pay more in tax compared to those on lower income, thereby upholding the system’s perceived equity and fairness.

But The Bahamas, which has long cherished its tax neutral platform and the absence of any form of income tax, has bucked this world trend. While income tax was one of the alternative options to VAT, the former Christie government ultimately rejected it due to the fact it has no history here and, more importantly, the extra costs and bureaucracy involved in setting up and administering such a system.

Some cynics, though, suggested that income tax was also turned down because it would force all Bahamians to declare their annual income - thereby exposing all those seemingly living above their means.