The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

A top Ministry of Finance official yesterday acknowledged that the Business Licence fee could be transformed into a flat-rate corporate income tax as he refuted arguments this nation is over-taxed.

Marlon Johnson, the acting financial secretary, conceded to a Bahamas Institute of Chartered Accountants (BICA) webinar that The Bahamas' current consumption-based taxation system is regressive and places a disproportionate burden on lower income persons by taking a greater proportion of their monies.

However, he argued that any reforms needed to be based on empirical data and evidence. "We don’t know if income tax or corporate tax is the answer just yet," Mr Johnson said. "We really need to do the foundational study. Our intuition tells us that, yes, we need to make that shift, but we really believe that shift needs to be informed by the studies.

"The premise of this is that we have a system that is sort of regressive. Intuitively and anecdotally we know that, but I think we need to test some of our assumptions and there are ways to do this. If you look at the issues you would be able to say that these segments of your society get the disproportionate share of taxation, and once you start to do that and you understand how income is driven in the economy, then you could start to have a more sensible discussion around how to shift the taxes to a more equitable stance.

"What you want to avoid is putting in cumbersome tax systems that create an incentive to evade. These are expensive, and difficult to do in even the most developed countries. So you don’t want to replicate something in The Bahamas that will just create an incentive to evade, or it inadvertently now puts the burden on the salaried class."

Rejecting arguments that The Bahamas is over-taxed, Mr Johnson said asserted that this was “not true”, and added: “For competitive reasons, governments have kept us lightly taxed. The positive side is that you have more disposable income to spend, but on the other side our infrastructure is in tatters because we have a $2bn infrastructure deficit according to the IDB.

"There are a lot of social credits that are limited because your tax base is relatively narrow. So fundamentally I think the better question is that we have to now get past this aversion to tax, or make the determination that we will be lightly taxed, but then expect that we will get little in return from the government.”

As to calls for a flat rate corporate tax, Mr Johnson said the Economic Recovery Committee had co-chaired had suggested transitioning the Business Licence fee from a tax based on gross revenue to one based on gross profit.

"We have done some studies on that, and that is a fairly simple move," he added, "but that could end up in the end being a flat corporate tax. But we have an offshore industry space that we have to look at, and there are some implications there. We also want to do things that are ensuring that we facilitate growth.

"So, in that tax structure, you want to think about ways you can give incentives for businesses that do make initial investments and structured it around that. So, conceptually, yes, I see the value in that but we do believe that is one of those areas that you want to do the empirical analysis. The decisions you make follow from the analysis you do."