The Tribune

• ‘Time has run out’; new fiscal year starts today

• Industry ‘can’t operate in state’ of uncertainty

• Banks still seeking clarity on tax switch-up

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian insurers yesterday said they are “totally in the blind” as to how Budget tax reforms will work with “time having run out” to make any adjustments due to the new fiscal year beginning today.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that “we cannot operate in a state where we don’t know what to do” because of ongoing uncertainty over the industry’s taxation regime for 2022-2023.

The Prime Minister, in unveiling the Budget more than one month ago, disclosed the Government’s intention to eliminate the 3 percent premium tax and replace it with an annual Business Licence fee equivalent to 2.25 percent of an insurance company’s “turnover”.

However, the absence of any implementation road map, together with a precise “definition” of what turnover means and a clear basis for calculating the new Business Licence fee, has left the entire sector - both property and casualty, as well as life and health insurers - scrambling to adjust without possessing key details.

The Bahamas Insurance Association (BIA) has been pushing for a meeting with Philip Davis QC and top Ministry of Finance officials in a bid to resolve all outstanding issues and concerns, but this has yet to take place and July 1 and the new fiscal year’s start has arrived. As a result of the Budget tax reforms, the previous 3 percent levy paid by consumers on their premiums when renewing or taking out new policies should now be eliminated.

“The short answer is no,” Mr Saunders replied, when asked if the Bahamian insurance industry had resolved all concerns surrounding the taxation switch with the Government. “We have a requested a meeting, and I think the Association is still waiting for a reply from the various parties in government.

“Time has run out. July 1 is when the Budget becomes effective. We are still awaiting a response on our request for a meeting, and hopefully we will get that shortly. Other than that we are in the blind; totally in the blind. That’s the issue. We cannot operate in a state where we don’t know what to do. We don’t know what the definition of turnover is. We don’t know anything.”

A critical issue as yet unresolved is the definition of “turnover” that the Government plans to apply for the purpose of calculating the Business Licence fees payable by the sector. Underwriters, in particular, are seeking clarity as to whether “gross written premium” or “net premium earned”, the latter of which strips out the sums ceded to reinsurers, will be used as the basis for the calculation, or even “net underwriting income”.

The resulting uncertainty, Mr Saunders said, is making it impossible for the industry to plan or properly advise partners such as reinsurers. And he pointed out that, while Tribune Business’ copy of the Business Licence (Amendment) Bill showed insurers as having to pay a fee equivalent to 2.25 percent of annual turnover, the draft he possesses shows that as being 2 percent.

“I can only tell you that from RoyalStar’s standpoint we are in a holding pattern because we don’t know,” Mr Saunders added. “We have told all our business partners around the world that we don’t know. Reinsurers, businesses we do projects for in The Bahamas, we told all of them that we don’t know. There’s all kinds of aspects going on that we are in the dark and cannot report intelligently to our partners on because we don’t know.

“They are asking questions we cannot answer. We are in a holding pattern while the law is changing around us. We do not know what to do. Hopefully the Government will respond to the BIA and we can have a meeting so that we can lay all the cards on the table and see what happens. After that we can make the appropriate changes to the business.

“I guess they’ll get to us eventually. There’s nothing we can do except continue to press the Association for a meeting and tell our business partners we cannot tell them anything because we don’t know anything.” Anton Sealey, the BIA’s chairman, did not respond to Tribune Business phone calls and messages seeking comment before press time last night.

However, Tom Duff, Insurance Company of The Bahamas (ICB) general manager, echoed Mr Saunders in saying: “The BIA is seeking to have an urgent meeting with the financial secretary [Simon Wilson] and maybe even the Prime Minister so we can get clarification. That meeting is still to be called.”

With the industry having little to go on beyond the Budget communication as to how its new structure is to be implemented, he added that obtaining - and agreeing on - the definition of “turnover” will be key. “We need total clarity on all these points so that we can work out what it means.”

Bahamian commercial banks, meanwhile, have “a full agenda with the Ministry of Finance” via a series of meetings this month that are designed to resolve multiple issues including fears that reimposing Business Licence fees on the sector could revive a situation that caused The Bahamas’ 2018 blacklisting by the European Union (EU).

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, yesterday said the Davis administration had still not eased his concerns on the issue despite the Prime Minister’s subsequent House of Assembly assurance that no harm would come to The Bahamas. However, unlike the insurers grappling with the 3 percent premium tax’s elimination, he added that the banks “still have time” as Business Licence fee payments are not due until March 2022.

“If they have legal advice, and have a basis to say that what we committed to as a government in 2018 is not being overturned this time, that needs to publicly documented and not narratively suggested,” Mr Bowe told Tribune Business of EU-related concerns.

“There are too many interested parties, particularly in the OECD (Organisation for Economic Co-Operation and Development) and EU countries that will have some questions, as will any objective local observer. The Government has a responsibility to be more elaborate in its reasoning that these elements will not impact our standing with the OECD and EU. They need to lay out what they have utilised to reach that conclusion.”

The then-Business Licence regime for commercial banks was disbanded in 2018 because it was part of a structure that created a preferential tax regime for foreign-owned entities, which enjoyed benefits and concessions that their counterparts operating in the domestic economy did not. This ran afoul of the EU’s prohibition on so-called ‘ring fencing’, which seeks to eliminate such preferences.

Mr Bowe, meanwhile, said the Homeowners Protection Act and real property tax matters are also set to be discussed in the upcoming meetings between the Government and commercial banks, which have been arranged by the Central Bank.

He added that it was vital the Government and commercial banking sector are “on the same page” to ensure The Bahamas’ post-COVID recovery moves forward, particularly since the latter is both the major credit provider and an “investor in public sector debt.

“We recognise there are some areas where the Government is looking to expand the revenue base, but it has to be done in a predictable manner so we do not have implications that are unforeseen. Collaboration will certainly help that,” Mr Bowe said.

“We’re all in this together. One way or another we’ll either rise together or be pulled under together. It’s far better to work together to lift ourselves up rather than working against each other to drag ourselves down.”