The Tribune

• Says ‘positive’ for Gov’t finances and ‘position’

• Chamber warns against ‘piecemeal’ strategy

• Corporate tax ‘won’t be before next election’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor has given guarded backing for a corporate income tax amid private sector calls for the Government to avoid a “piecemeal” approach to this reform.

John Rolle, in an address to the Bank of Nova Scotia Trust Company’s 65th Bahamian anniversary celebrations, said discussions on such far-reaching tax reform were “positive” for both this nation’s economic “positioning” and efforts to meet its “international obligations”.

And, using cautious language, he suggested that implementing a corporate income tax will also boost the Government’s still-strained public finances provided the correct structure and “safeguards” are in place.

“In passing, I think it is also positive, as far as our international obligations and positioning are concerned, that discussions on corporate income taxes are at such a developed state in The Bahamas,” Mr Rolle said. “With the right framing and safeguards, reforms of this nature would also have a favourable impact on public finances.”

The Governor did not respond to subsequent Tribune Business questions on what he meant by “international obligations and positioning”, although he is likely referring to The Bahamas’ commitment to the G-20/OECD 15 percent minimum global corporate tax initiative. Implementing a corporate income tax would also enable this nation to shed the ‘tax haven’ label that has often been attached to it.

Mr Rolle also did not detail what he meant by “right framing and safeguards”, although this could be a nod to repeated International Monetary Fund (IMF) calls for a Bahamian corporate income tax to be accompanied by a personal income tax on high earners. Otherwise, companies could seek to avoid/evade corporate income tax by paying out profits as salaries to owners and top executives.

The Central Bank chief’s comments came as Timothy Ingraham, the newly-elected Bahamas Chamber of Commerce and Employers Confederation (BCCEC) chairman, told Tribune Business that a corporate income tax is probably the Government’s “end game” for the enhanced Business Licence reporting and verification.

Many in the private sector believe the tightened reporting requirements, which mandate companies with an annual turnover exceeding $5m to provide full audited financial statements just to verify their revenue for Business Licence purposes, are designed to prepare the ground for corporate income tax and Mr Ingraham voiced similar suspicions.

“That, I would suspect, is probably the end game,” he told this newspaper, “but if it is, let’s have the full conversation on all of this and what it all means rather than come with it piecemeal. If we’re going to discuss corporate income tax, it needs to be a wide-ranging discussion with auditors and other things need to be done.

“We understand the end game here may be corporate income tax, but countries that have a corporate income tax don’t require full audited financial statements. It’s not necessarily required by other jurisdictions.”

Simon Wilson, the Ministry of Finance’s financial secretary, subsequently confirmed to Tribune Business that preparation for a possible corporate income tax, and the enhanced reporting, verification and filing that will require, was one of the objectives behind the enhanced Business Licence verification requirements.

He added that the full audits for companies with turnover exceeding $5m, and the reviews and attestations that smaller firms must produce from 2024 onwards, are also one piece in the Government’s strategy to achieve a 25 percent revenue-to-GDP ratio through enhanced enforcement and without raising rates or introducing new and/or increased taxes.

Dionisio D’Aguilar, the Superwash principal and former Cabinet minister, told this newspaper that while he had no issue with preparing for a Bahamian corporate income tax it was unlikely to be implemented before 2026 when the next general election is due.

“He also mentioned getting ready for corporate income tax. Simon said one of the main reasons they’re doing this is that corporate income tax is coming and we need to get ready,” Mr D’Aguilar said of Wednesday’s meeting between the Bahamas Institute of Chartered Accountants (BICA) and the Department of Inland Revenue over the Business Licence audits.

“I don’t have a problem with that but, realistically, no corporate income tax is going to come before the next general election. There’s no need for this now. Why do I need to audit my salary expenses, audit my depreciation expense, audit my utility bills when, in essence, in 2024 all you’re looking for is my revenue.

“What’s the rush? If we need a year, give us another year. You’re not going to require that information until 2026-2027 assuming this particular government gets re-elected. This particular government is not going to roll-out corporate income tax in 2024. What’s the rush?”

Meanwhile, Mr Rolle in his Bank of Nova Scotia Trust Company address said overseas investments by Bahamians via the Investment Currency Market (ICM) are expected to be sustained at $200m per annum over the medium-term having quadrupled compared to pre-COVID.

Pointing to what he described as “significant administrative relaxation of investment currency rules under exchange control”, the Governor added: “Although our reform scope has been cautious and conservative by most prudent standards, we still expect investment transactions over the medium-term to be sustainably funded by over $200m annually compared to less than $50m on average in the years just leading up to 2019.

“It is highly sustainable, in the context of gross annual forex (foreign exchange) inflows through the local banking sector, now exceeding $8bn, and adequate foreign reserves outlook that supports the value of the Bahamian dollar fixed exchange rate.”

As for the constant international regulatory pressures facing The Bahamas and its financial services industry, Mr Rolle said compliance with these demands are often “desperately costly” for The Bahamas and there is insufficient data to show the results justify this expense.

“We are still not convinced that the global process is either entirely effective or objective, and there is a sense that it harbours biases against smaller international financial centres that must be confronted,” he added.

“The Central Bank has been bringing this attention to light in its annual anti-money laundering research conference, which for the past three years has convened the leading scholars and standard setters on this topic to uncover the empirical connections between global standards and methods and measures of success in deterring financial crimes.

“What have the researchers uncovered so far? That the effort is desperately costly for smaller countries and that not enough data is being made available to link outcomes to the level of costs for efforts being exerted. In fact, the estimates are that just based on the value of assets confiscated or recovered, it is costing authorities more than ten times the amounts spent on enforcement.”

With The Bahamas already preparing for the fifth round of Financial Action Task Force (FATF) mutual evaluations on its financial crime defences, which are set to take place in 2024, Mr Rolle said the Central Bank will “work more closely across industry, with the Government and other regulators, to improve our international outreach and put a dent in misperceptions that could be harming our reputation”.