The Tribune

• Business Licence switch raised sector fees

• Fidelity chief still queries compliance on EU

• Hit ‘diamond standard’ on ‘rules of the game’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian commercial bank chief yesterday challenged the Prime Minister’s assertion that the Government lost $80m in revenues through the sector’s 2018 tax structure change to meet the European Union’s (EU) demands.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that Philip Davis QC appeared to have been “inaccurately informed” about the revenue impact from switching to the present fee-based system as his institution’s financial statements show it has paid more to the Government every year since the change happened.

The Prime Minister, in leading off yesterday’s Budget debate, sought to reassure that reverting back to the previous Business Licence fee will not undermine previous commitments to the EU, but Mr Bowe still voiced concern that doing so may result in perceptions that The Bahamas is no longer abiding by “the rules of the Game”.

He warned the country could suffer serious reputational damage if it was viewed as no longer honouring previous commitments, and warned that the advice provided to Mr Davis - that The Bahamas can proceed with the tax regime switch and still remain compliant with its pledge to end so-called “ring fencing” - is “certainly not consistent with the analysis performed” prior to the 2018 reforms.

The Bahamian financial services industry’s present fee-based system, which applies to both domestic commercial banks and institutions operating in the “offshore” sector, was introduced to meet EU demands that this nation eliminate preferential tax breaks targeted at the latter segment. The same incentives could not be accessed by commercial banks providing services to the domestic economy, leading to what the EU and its 27 members argue is “ring fencing”.

Prior to the 2018 reforms, Bahamas-based commercial banks paid a revenue-based annual 3 percent Business Licence fee to the Government. The 2022-2023 Budget wants to return to this system, although the rate will be slightly less and structured so that it is based on the type of financial services providers offer.

Mr Davis said the reversion to a Business Licence fee-type structure was necessary because the Government had failed to make-up, or compensate for, the $80m revenue loss that resulted with the fee-based switch (see other article on Page 1B), but Mr Bowe said the Public Treasury’s income had increased - not decreased - as a result. He added that, instead of making payment to the Department of Inland Revenue, the monies are collected by the Central Bank.

Suggesting that it would be helpful for the Government to publish the advice received, the Fidelity chief told this newspaper: “In matters that require collaboration and full support, narrative and communication are insufficient. There were several statements where I would say the Ministry of Finance did not accurately inform their minister of finance [Mr Davis].

“One of the statements was that the change in regime led to a decline in government revenue. I can tell you, as a publicly-traded company and my financial statements are available online, the new regime as designed was calibrated by the Central Bank in such a way that domestic banks and institutions did not expect any change in fees.

“The fees shifted from being a Business Licence to being paid to the Central Bank. The change was, as opposed to being paid to the Department of Inland Revenue it was paid to the Central Bank. There was a mechanism put in place for the Central Bank to remit the fees collected to the Government,” Mr Bowe continued.

“It was not a Business Licence fee, but the Public Treasury certainly received no less funds from the banks as part of the change in regime and, in fact, there was an increase. There’s certainly been no decline in any of the fees paid. There was no revenue loss. There’s a certain amount of clarity required because it’s mischief to say there was a reduction in revenue. It was just redirected and paid to the Government.”

Fidelity Bank (Bahamas) financial statements back-up Mr Bowe, as annual “bank and Business Licence” fee payments have increased for every year since the switch was unveiled.

The BISX-listed institution paid $2.867m in such fees for 2017, the last full year when the 3 percent Business Licence regime was in effect. Following the switch, Fidelity Bank (Bahamas) paid $2.902m in such fees in 2018; $3.088m in 2019; $3.705m for 2020; and $3.756m in 2021.

“I would hope to see the legal and technical advice provided. There are certain matters I feel it’s important to not loosely address,” Mr Bowe said. He pointed out that reverting to a Business Licence fee for commercial banks could reinstate the very same “ring fencing” that The Bahamas promised the EU it would eliminate given that domestic and “offshore” institutions will once again be subject to different tax regimes.

The Fidelity Bank (Bahamas) chief said that besides having a full physical presence, and “mind and management”, in The Bahamas, many private wealth management providers also have clients in this nation who are second homeowners and/or permanent residents. These providers, in common with the commercial banks, provide services to Bahamas residents and earn income here yet are set to be taxed differently.

Mr Bowe added that the former Minnis administration’s commitments had gone beyond the elimination of “ring fencing” to pledge that there would be “no smoke and mirrors” to hide such practices. Suggesting that the Davis administration’s advice seems to contrast with what was provided then, he added that both governments have been “guilty” of failing to consult the financial services industry in a timely manner.

“When we as a small island state make commitments, regardless of the administration, it’s important that we are very comprehensive when we change those commitments and it’s not sufficient to say technical advice was sought and we were ultimately deemed to be in compliance,” Mr Bowe told Tribune Business. 

He added that The Bahamas needed to both justify and explain the change to the EU and its 27 member states, including why this nation is still in compliance with its “ring fencing” obligations. “I’m not saying we should capitulate to the EU, but if we make a commitment we should be clear, thorough and comprehensive in how we make changes to those commitments and remain in compliance,” the Fidelity chief said.

“We as a country have to be careful when we change our position. I’m not saying not to do so, but we have to - if we seek to change - ensure we’re still abiding by the rules of the game. I take the Prime Minister at his word that the technical advice and liaison has been done, but such advice should be shared with the industry. We have to demonstrate we are not only gold standard but diamond standard” and beyond reproach when altering prior commitments.

“Based on the participation I was involved with, on the surface of it, it does not seem to be in compliance with what we committed to in the past,” Mr Bowe said of the Business Licence fee revision for commercial banks.

The reforms to the Business Licence Act mandate that all Bahamas-domiciled financial services entities will pay a $2,500 “tax”.

On top of that, they will pay an additional levy depending on their licence and nature of their business activity. So-called “authorised agents” operating under the Banks and Trust Companies Regulation Act 2020 will pay a $10,000 annual licence fee, while “other public banks and trust companies” will pay $5,000. Authorised dealers must part with a sum equal to 2.25 percent “of total revenues net of interest expenses”.

Meanwhile, money lenders; money transmission businesses; insurance companies and fund administrators, investment managers and advisors working with Bahamian dollar assets all have to pay a Business Licence fee matching 2.25 percent of turnover.