The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Real estate firms will experience the highest increase in their tax burden for each of the four corporate income tax options that the Government is proposing as replacements for the turnover-based Business Licence fees.

The Government's long-awaited 'green paper' on corporate income tax choices, released at the end of last week, reveals that Bahamian realtors are projected to see an increase of between 2.2 percent and 3.7 percent in their tax burden, as a proportion of gross turnover, compared to what they pay now under the present Business Licence fee.

Recreational activities will see the next highest tax burden increase from switching to a corporate income tax of between 1.5 percent and 2.9 percent, the Government paper adds, followed by financial services and insurance with a rise of between 0.9 percent to 1.5 percent. It states that the increases will be highest among high-margin industries and businesses because, under a corporate income tax, they will taxed in bottom line earnings and profit margins rather than turnover.

Those industries forecast to benefit most from ditching the current Business Licence fee are low margin sectors such as retail/wholesale and construction. The former, which is traditionally high volume, especially in food distribution, would see their tax burden under corporate income tax decline by between 0.3 percent and 0.5 percent as a percentage of gross turnover, while construction firms could see either a 0.1 percent decline or 0.3 percent increase depending on the option.

"Although the tax burden across the economy is at least as high as under the current Business Licence fee for each option, it is estimated that tax revenues from the wholesale and retail trade would be reduced across all options," the Government's 'green paper' said.

"This reflects the relatively high effective tax rate paid by this sector now compared to other sectors, which are estimated to face an increase in their tax burden across most options. This is particularly the case for the financial services (excluding insurance activities) and real estate sectors."

David Morley, Morley Realty's president, yesterday questioned why the Government was leaning towards imposing corporate income tax on domestic firms and entities that are not part of multinational groups earning over 750m euros per annum. The latter is the threshold above which the G-20 and Organisation for Economic Co-Operation and Development's (OECD) minimum 15 percent global corporate tax would apply.

"If that's what they're putting focus on, why don't they restrict it to those multinational groups and leave local businesses alone?" he asked. "The whole issue for those external agencies is those multinational groups. I think the Government is using this as an additional money grab from businesses. It's another one of these big game changers, and if it's not done properly it could cripple a lot of real estate companies."

Others were more welcoming. Robert Sands, the Bahamas Hotel and Tourism Association's (BHTA) president, yesterday said the hospitality industry in principle favours corporate taxation levied on profits, and the bottom line, rather than revenue and turnover.

Disclosing that the tourism industry had been part of the private sector committee advising the Government, he added: "Now that a position paper has been put out, the Hotel Association and member hotels are reviewing the document to determine what impact and level of support we intend to give. In general, the Association does believe a tax on profits is better than on budgeted income, revenue income and turnover etc.

"This is something that has only just been received by the general population, and is currently being reviewed in detail before we are able to make any further detailed comments on the matter." When measured by annual turnover, the Government's 'green paper' forecast that the highest tax burden increase across all four options proposed will fall on companies generating between $1m to $6m per year.

Their tax burden, as a percentage of gross turnover, will rise by between 0.6 percent to 1.5 percent depending on the option taken. Only if the Government decides to restrict the corporate income tax to a 15 percent levy on those businesses caught by the OECD/G-20 initiative will there by no change.

Companies generating between $400,000 and $1m will also experience an increase of between 0.5 percent and 1.3 percent according to which choice The Bahamas makes. Firms earning between $50,000 and $400,000 will face the highest potential tax burden rise, of 1.7 percent of gross turnover, but only if The Bahamas goes for option four which would see them facing a 10 percent corporate income tax as opposed to the present Business Licence fee.

Larger companies, such as major resorts and BISX-listed firms which earn over $6m in annual turnover, will suffer a lower tax burden increase than those in the $400,000 to $1m and $1m to $6m brackets. Depending on the option taken, the increase would be between 0.2 percent and 0.7 percent.

"Across the options, the tax burden for very large businesses (turnover greater than $6m) is estimated to increase," the Government's 'green paper' said. "For businesses earning less than $400,000, the tax burden is estimated to increase only under options two and four where corporate income tax is levied on all businesses and thus there is a change from the existing Business Licence fee system.

"Comparatively, under option three, the corporate income tax applies only to larger firms (earning more than $400,000) and the existing Business Licence fee system remains for smaller firms. It is recognised, however, that options two and four imply the introduction of corporate income tax even for small businesses. The viability of this is an important topic of this consultation, and business costs associated with implementation will be considered in detail in the design phase."