The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former attorney general yesterday urged The Bahamas to implement a "progressive" income tax regime geared to its own needs before one is imposed by the OECD/European Union (EU).

Alfred Sears QC told Tribune Business that this nation should view its upcoming removal from the EU's so-called "grey" list, as revealed by the Financial Times, as "a very temporary reprieve" that gives it time to design a tax system suited "for the 21st century economy".

Arguing that The Bahamas' current reliance on regressive consumption-based taxes, such as VAT and import tariffs, was "inefficient" and generating insufficient revenue to meet the country's development needs, Mr Sears argued it needed to implement corporate and personal income taxes that suit its requirements before an inappropriate system is forced upon the country from outside.

Such pressures appear to gathering at the Paris-based headquarters of the Organisation for Economic Co-Operation and Development (OECD), the self-proclaimed overseer of global tax competition, which is increasingly suggesting that all nations introduce some kind of "minimum" corporate income-type tax as a means to crack down on avoidance/evasion by multinational corporations.

This, together with the OECD's focus on developing a uniform global system for taxing the digital economy, and players such as Amazon, Facebook and Google, suggests it may only be a matter of time before The Bahamas faces calls to bring its taxation system into line.

"It is what I consider a very temporary reprieve," Mr Sears told Tribune Business, should the Financial Times report about The Bahamas being removed from the EU's 'grey' list prove true. "If we become complacent in celebrating the removal, which indeed is warranted, we will lose sight of the fact we can reasonably expect an ongoing protectionist campaign against The Bahamas as a low tax nation.

"Any reprieve must be used wisely because trust me: The next assault is right around the corner. That is one way of eroding sovereignty - the right of countries to chose when, and how, and at what rate, to tax. It has weakened and eroded the competitive capacity of this country."

The Bahamas avoided the EU's non-cooperation "blacklist" last March, but was placed on a so-called 'grey list' of 34 jurisdictions that were given until the end of last year to fulfill their commitments to complying with its tax transparency and anti-evasion/avoidance demands otherwise they could be "blacklisted" in 2020.

This week's Financial Times report suggests The Bahamas has now completely satisfied its demands to eliminate "ring fencing", which are investment incentives provided to foreign entities and investors that are not available in the domestic market, and economic substance requirements that call for companies present here to have a physical presence and be doing real business.

The action, though, now appears to be shifting to the OECD, whose Base Erosion and Profit Shifting (BASE) initiative shares similarities to the EU effort. As a result, Mr Sears urged The Bahamas to move rapidly on tax reforms for its own benefit rather than for the EU/OECD.

"Rather than designing a tax regime for the peace, order and good governance of The Bahamas, what we will have is a tax and tax rate being imposed in order to lesson the competitive advantage they perceive The Bahamas and other low tax jurisdictions have," he told Tribune Business.

"We need to realign ourselves. Clearly, from the national perspective, relying on consumption tax is inefficient. We have to address it rather than keep kicking the can down the lane. We need a tax policy that sustains in an efficient manner the infrastructure we have throughout the archipelago with a very disparate population."

Arguing that The Bahamas' current tax structure is simply not generating sufficient revenues to meet the country's development and social needs, Mr Sears added: "There needs to be a new tax regime, not one imposed by the OECD or EU as their intent is to run us out of business, but designed to meet the development needs of our society.

"I would introduce a corporate income tax, but I personally believe we need personal income tax. We need a progressive system of taxation. The more skewed the distribution of wealth is, the greater the incidence of crime, disaffection and utter neglect of infrastructure. We have to design a tax regime that is progressive.

"That's essential to maintaining domestic stability and, in my opinion, it's the best way to ensure we have the proper delivery of services to make the quality of life - not only for Bahamians but visitors - sustainable and realign ourselves for the 21st century global economy. Certainly the tax regime we have now is really regressive and it cannot sustain this small population and country."

Paul Moss, Dominion Management Services' president, told Tribune Business that the term "false joy" was the best way to describe The Bahamas' reported removal from the EU's 'grey list' as the cost of complying with the 27-nation bloc's demands had been significant.

"Once you do comply with what they demand, business closes out and clients leave," he told Tribune Business. "We've done everything we can do, and what we've done is create a slow death of the financial services industry. If we stay with this model we will certainly die sooner rather than later."

Reiterating his call for The Bahamas to implement a low-rate corporate income tax before it is forced upon the country by the likes of the EU and OECD, he added: "I've been advocating for this since 1999 or so, and every year it gets closer. I'm not sure why our leaders cannot see it.

"They're going to be forced to do it, and if they're forced to do it we will not have the wiggle room to do it in a way that will be advantageous to us. We should not be wasting time passing stop-gap laws. They need to look at the industry holistically, and make the right set of changes so we become competitive in this ever-changing world.

"At the end of the day it comes back to tax. That's why the offshore world was created because onshore tax rates were considered too punitive. We have to be competing on tax."