The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday said income tax is “not on the table” although he appeared to leave open the possibility of replacing Business Licence fees with a corporate version.

Michael Halkitis, addressing the Bahamas Institute of Chartered Accountants (BICA) accountants’ week seminars, confirmed the Government is once again pursuing a study of the country’s entire taxation system although he gave no commitments as to the likely outcome or potential reforms.

Responding to accountant Pedro Delaney, who said he had personally “long thought a progressive taxation structure, and specifically income tax or corporate income tax, would have benefited The Bahamas”, the minister of economic affairs disclosed that previous research was again being dusted off.

“There had been a study commissioned a few years ago looking at the entire tax system because of the Organisation for Economic Co-Operation and Development’s (OECD) global minimum corporate tax initiative,” Mr Halkitis said. “We have revived that study where we are looking at the overall tax system.

“I can say I imagine they will look at the possibility [of income tax], but in terms of being on this government’s agenda it’s not on the table.” The former Minnis administration had adopted a similar stance, and had also pledged to conduct studies of the Bahamian taxation system given the latest pressures from the OECD and international community.

“I know there’s been a long discussion about moving from a Business Licence fee to a corporate income tax,” Mr Halkitis added. “It’s a frustrating sore point among businesses that have high turnover and low margins. I imagine they [researchers] will be looking at that.

“There’s also a school of thought that it’s no use implementing a corporate income tax without personal income tax because all of a sudden no business will make any money.” The last assessment of the overall Bahamian taxation system was conducted by Deloitte & Touche in 2018.

“The short answer is we’re having a study done to look at the overall taxation system,” Mr Halkitis reiterated. “Income tax is not on the agenda of the Government at this time, and any change - including the impact of a corporate income tax and moving from the Business Licence fee to a corporate tax - of course we’ll consult widely for people to have input and understand what the impact of the potential changes might be.

“At this early stage we are just looking at the entire system to see where we can make changes and be more efficient.” The minister also again defended the Government’s decision to eliminate as many of the VAT exemptions and zero ratings as possible in cutting the overall tax rate to 10 percent, and moving back to a broad-based model.

Mr Halkitis argued that the resulting administrative simplicity would increase government revenues, and held crack down on fraud and waste, referring to a study - the results of which were previously disclosed by Tribune Business - showing that compliance/collections had dropped from the mid-90 percents to around 83 percent after the exemptions were introduced.

Asserting that the best way to minimise VAT’s impact on lower income families was via direct financial assistance, rather than exemptions, he added that such tax breaks also benefited wealthier Bahamians and residents who can afford to pay.

“The biggest purchasers of bread are the fast food restaurants. When you give an exemption on that, not only do you give it to lower income persons, but you give it to those businesses,” he explained.

“We are in receipt of a study showing that without the exemptions, the efficiency of the tax was in the mid-90 percents, and when the exemptions came in for whatever reason the effectiveness dropped to 83 percent.”

Mr Halkitis said the upcoming changes to the VAT Act will also reintroduce the ‘zero rating’ on financial services provided by Bahamian institutions to international clients, thus restoring their export status that had been taken away in 2019.

The minister also promised to “stick with what works” when asked by Michael Cunningham, chair of the Government-sponsored venture capital fund, whether the new administration will continue to provide a guarantee - as its predecessor had done - for 75 percent of the funds up to a $500,000 ceiling that were extended to small and medium-sized enterprises by financial institutions.

“We understand that even with the Government guarantee in place there have been challenges finding financial institutions that lend money against the guarantee,” Mr Halkitis said. “We have to look at exactly what the problem is and work through it.”

Mr Halkitis said the Government will also focus on ensuring that agencies such as the venture capital fund, Small Business Development Centre (SBDC) and Bahamas Development Bank (BDB) are “all working in tandem” to support small businesses “and not working at crossed purposes”.