The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must reform a tax system that “squeezes blood from a stone”, a well-known banker argued yesterday, renewing his plea for greater “equity” via income-based taxation.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that the country’s regressive, consumption-based tax system means that it is effectively seeking “to extract more from those who have less” as the Government bids to increase its annual revenue income by $1.2bn over the next four years.

Speaking after the just-released 2022 Fiscal Strategy Report called for tax revenues to grow by 43 percent to more than $4bn by 2026-2027, he said the tax system’s nature was helping to worsen “the widening gap” between high and low income earners that was already exacerbated by the fall-out from the COVID-19 pandemic.

“Squeezing blood from a stone is what we’re trying to do by having a regressive tax system that focuses its attention on consumption based taxes,” Mr Bowe told this newspaper. “We are effectively trying to say: ‘Extract more from those that have less’. We really have to look at the concept of equity, and say those that have more have a duty to contribute more even if their use of government services and social services is less.” 

Again strongly signalling his belief that The Bahamas must explore tax reforms based on a person’s ability to pay, such as personal and corporate income taxes, the Fidelity Bank (Bahamas) chief asserted that such radical changes would not drive investors, commerce and high net worth individuals away. 

Instead, he argued that The Bahamas’ other attributes, including its US proximity and relative economic and political stability, will ensure this nation remains attractive to both local and foreign investors. “The environment that the Government provides, economic and political stability, enables people to make and earn higher incomes,” Mr Bowe said.

“Tell them to do the same thing in an unstable country with a high inflation environment. A small population is accumulating the wealth. We see that happening in The Bahamas with the widening gap between the ‘haves’ and the ‘have nots’.” The consumption-driven nature of this nation’s VAT and Customs duty-reliant tax structure means those on lower incomes continue pay disproportionately more of their income in taxes compared to their wealthier counterparts.

Most nations rely on income tax, both personal and corporate, as their government’s primary source of revenue since it is viewed as a progressive levy directly linked to ability to pay. Those earning more pay more in tax compared to those on lower incomes, thereby upholding the system’s perceived equity and fairness.

But The Bahamas, which has long cherished its tax neutral platform and the absence of any form of income tax, has bucked this world trend. While income tax was one of the alternative options to VAT, the last Christie government ultimately rejected it due to the fact it has no history here and, more importantly, the extra costs and bureaucracy involved in setting up and administering such a system.

Some cynics, though, suggested that income tax was also turned down because it would force all Bahamians to declare their annual income - thereby exposing all those seemingly living above their means. The Government’s just-released Fiscal Strategy Report 2022 acknowledged Mr Bowe’s concerns by saying the “fairness” of taxes is kept under constant review, although no specific reform measures were detailed.

Among the proposed legal and administrative work, the report said, is a “review of existing laws to determine opportunities for modernisation and simplification of tax legislation, having regard to efficiency, fairness and stability of taxes, and to achieve conformity with best practices”.

Simon Wilson, the Ministry of Finance’s financial secretary, also confirmed that the Government is hoping to release a so-called “green paper” consultation document by the 2023 first quarter’s end outlining options for addressing the global push for a minimum 15 percent corporate tax rate.

The Bahamas is among the 133 nations that have agreed to implement this, although its introduction has been pushed back by at least a year until 2024. The initiative is designed to ensure the profits and revenues generated by multinational enterprises (MNEs) with global turnover exceeding 750m euros are taxed in the nations where they are generated, rather than being artificially shifted to low-tax countries as part of avoidance and evasion strategies.

This has potentially important implications for taxes such as the existing Business Licence fee, with the Government having hired the Deloitte & Touche accounting firm to assess the consequences. Meanwhile, Mr Bowe criticised past administrations for failing to engage the Bahamian people in a national discussion on taxation and its importance in providing essential public services.

“I don’t know why political class has a fear of speaking to the populace about the need to render unto Caesar what is due to Caesar,” he told Tribune Business. “You can only provide services as a government when you have revenues.....

“The conversation would not be pessimistic; it would be realistic, educating the population that you get what you pay for. If you have low taxes, you have minimal government services. If you want big government or extensive public services your tax rate has to be commensurate with what is being funded.”

Mr Bowe also urged the Government to stick to the fiscal targets and road map set out in its latest Fiscal Strategy Report rather than seek to constantly change them. “The point I bring in, which is critically important, is that in the Bahamian vernacular mouth can say anything or documents can say anything.

“When we look at a fiscal strategy going forward for the next five years, it should not be one that changes materially every year if the projections are realistic and based on data. To-date, we sometimes seem to put in optimistic projections where the view is that we’ll just revise them later on, push the date of reform as far out as we can, and keep the people happy by telling them what they want to hear rather than what the realities are and let them know we have a challenge where we all have to contribute to digging ourselves out of the fiscal hole we find ourselves in.”