The Tribune

• Bahamas can’t defend no tax ‘at all costs’

• Ex-DPM urges: View G-7 as ‘glass half full’

• Opens digital tax, business licence reform

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas “must stop crying as if we are the victim” and instead “aggressively” reform its tax system to compete under a 15 percent minimum global corporate levy, a top banker argued yesterday.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business this nation cannot afford to adopt “a last of the Mohicans” stance in trying to defend its “no tax” platform “at all costs” against the reforms unveiled by the Group of Seven (G-7) finance ministers at the weekend.

Asserting that tax reform is required regardless of external pressures, given that the government’s income has consistently failed to cover its spending in every year since Independence, he said The Bahamas’ response to the G-7 initiative “lacked maturity” because it focused on sovereign independence rather than economic independence.

While The Bahamas can craft its own laws and implement them as it sees fit, Mr Bowe said this nation and its export industries - especially financial services - have to abide by global rules such as a minimum corporate tax to “compete and survive in the global arena”.

Failing to comply could leave The Bahamas “dead on arrival”, he warned, adding that it would be “very myopic” to hang on to the country’s “no tax” platform while failing to realise it is harming “the very business we are seeking to attract” - such as meetings and conventions held by large multinationals in this nation.

Mr Bowe also voiced disappointment that the prime minister’s budget communication had only focused on the Bahamian financial industry’s contraction over the past two decades, adding that it suggested this nation is simply “throwing its hands up” as opposed to crafting a strategy for how the sector can compete and thrive in a corporate tax environment.

Acknowledging that the G-7 announcement “doesn’t immediately create a problem” for The Bahamas, given that it goes after multinational corporations that have never figured prominently in this nation’s focus on private wealth management, Mr Bowe nevertheless argued that the country cannot ignore the progress made towards a uniform global corporate tax rate.

The Fidelity Bank (Bahamas) chief reiterated that The Bahamas should act now and get ahead of the inevitable in its own interests, especially when it came to domestic taxation reform. “What is is demonstrating is when we see an inch being taken it’s going to go a mile,” Mr Bowe told Tribune Business. “We have to stop being reactive; we have to be proactive.

“The Bahamas needs tax reform urgently because it is not earning enough revenue to cover the Government’s deficits. We’ve run deficits since Independence, and our revenue-to-GDP ratio has been between 15-18 percent, when the industrialised countries are at 25 percent. We know the system is regressive, and imposes a greater burden on the less fortunate while their wealthier counterparts pay proportionately less of their income in taxes....

“If our system is not working, why are we waiting until the world moves to a mandatory system instead of moving into this space, meeting the minimum standard, delivering a higher service and being first movers as opposed to being the Last of the Mohicans, sitting on ‘no corporate tax’ and ‘no individual income tax’, and dying by our pledge to maintain it [the existing tax system] at all costs?”

K Peter Turnquest, ex-deputy prime minister and former finance minister, yesterday echoed Mr Bowe by arguing that The Bahamas should view the reformed global tax architecture proposed by the G-7 as “a glass half full” and exploit the potential opportunities that it may create.

Reiterating that The Bahamas cannot put its “head in the sand” and hope the 15 percent minimum global corporate tax initiative goes away, he argued that it offered this nation the possibility of asserting taxation rights over digital services provided to locals and residents by foreign providers.

“At present all international digital services provided to consumers in The Bahamas are untaxed. If we were to assert our taxing rights over these transactions, it would represent new revenue,” Mr Turnquest told the House of Assembly during the Budget debate. 

“So as not to be too controversial on this matter today, I will not give specific examples of areas that may be subject to such a tax, but consider all of the service providers that provide services to Bahamian entities or consumers delivered in the Bahamas.” The likes of Netflix and Facebook are already charging VAT on services supplied to Bahamians that are consumed in this nation.

Mr Turnquest, meanwhile, said the G-7 move also presented an opportunity for The Bahamas to reform its Business Licence fee and way it taxes companies. He added: “The second pillar, which envisions a minimum global corporate income tax of 15 percent, is also an opportunity to modernise our existing corporate tax structure, which has been criticised for many years as unfair locally and internationally, and an impediment to business.

“With such a globally accepted minimum, The Bahamas could put itself in the game to attract large multinational corporations that are currently domiciled afar due to tax treaties. We are close, enjoy dollar parity, stability and a common business language. Why not The Bahamas?

“Mr Speaker, I know this is a touchy subject for some of us so I will leave it there, but I encourage everyone to see the glass half full and reimagine the opportunities these developments can potentially bring, instead of the potential losses, which invariably will come anyway from blacklisting if we do nothing.”

While there was no cause for Bahamian alarm, as the details of the G-7 proposal have yet to be worked out, Mr Turnquest added: “Make no mistake, however, that no matter how the final agreement ends up it is likely to have some impact on The Bahamas and our international taxing obligations, if not domestic.

“For those who continue to hold their heads in the sand believing that we will be able to continue as a non-taxing jurisdiction, I would only remind them that bank secrecy was also at one time an untouchable subject that has gone the way of the dodo bird.

“We need to adapt and to develop strategies to get ahead of these developments, and exploit the opportunities that can be derived as a cooperating and globally compliant jurisdiction.”

Mr Bowe, meanwhile, said that while some may argue that the Government should focus on collecting all arrears and existing taxes, experience had shown - especially the $600m-plus owed in real property tax - that existing levies were inefficient, hard to recover and difficult to monetise.

“Our initial response to the G-7 announcement lacked maturity because it focused on national sovereignty when what we should be talking about is economic independence, not sovereign independence,” Mr Bowe added.

“We’re a member of a global community. Sovereignty allows us to craft our own laws and way we wish to implement them, but it doesn’t take away our responsibility to be a player and survive in the global arena. We can choose not to [comply with a minimum global corporate tax], but would be dead on arrival as an open economy.

“We are very myopic if we cannot see these tax rules ending up hurting business we are trying to attract. We have to make sure we understand the rules of engagement and make sure we fit them.” In particular, Mr Bowe said the G-7’s 15 percent proposal could impact those multinationals who hold meetings and conventions in The Bahamas, as these entities typically enjoy tax breaks and exemptions back home for doing so.

Pointing out that The Bahamas lacks the “strength and size” to fight the G-7 on this issue, he added that it was vital this nation set out its philosophy and vision for the Bahamian financial services industry moving forward.

“The Budget sadly referred to financial services contraction, and gave the impression we should almost throw our hands up,” Mr Bowe told Tribune Business. “We need to be more aggressive. If we wait for something to be imposed on us we will throw our hands up, but if we are more deliberate and strategic and prepare ourselves to take advantage of the rules as drafted, we can compete in that space.”

He added that The Bahamas needed to establish better links with G-7 member nations “so that we understand what is coming down the pipeline as opposed to catching the crab as it comes out the pipeline”.