The Tribune

• Banker says that means corporate income tax

• Urges Gov’t to come clean on tax reform plans

• Fears EU, OECD to target nation on ‘ring fence’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian banker yesterday argued this nation is merely “addressing the symptom as opposed to the root” cause of its blacklisting woes as he urged the Government to clarify its corporate income tax goals.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that tackling the “root” ultimately requires this nation to move to a more equitable and progressive form of taxation based on ability to pay, such as a corporate income tax.

Warning that The Bahamas cannot afford “to play cat and mouse and cute”, especially following the corporate income tax ‘green paper’ consultation earlier this year, he called on the Government to come clean over whether its ultimate plan is to introduce such taxation and replace the much-criticised Business Licence fees.

Speaking after The Bahamas earlier this week failed to escape the European Union’s (EU) tax blacklist, Mr Bowe told this newspaper that the country’s ambition must be to “permanently stay off” such adverse listings as opposed to having to continually pass rushed reforms to facilitate its exist.

He also voiced fears that the EU and Organisation for Economic Co-Operation and Development (OECD) will likely raise renewed concerns around so-called “ring fencing”, namely the the provision of preferential tax regimes for foreign investors over domestic ones, as a result of Business Licence regime changes enacted in 2022.

These had amended what was previously agreed with both bodies to eliminate “ring fencing”, said Mr Bowe, who argued that The Bahamas cannot pass-off Business Licence fees as a “quasi-corporate income tax” because these will be viewed as a “band aid on a cancer” or “harmful tax practice” by the international community.

And he also warned that, with administrations and tax policy seemingly changing every five years, The Bahamas was in danger of undermining international trust that it will live up to obligations and commitments entered into by predecessor governments.

“It is more important us getting permanently off these lists as best we can as opposed to temporarily off these lists,” Mr Bowe told Tribune Business. “I think there are a number of matters that have been raised by the EU and OECD in the past that don’t seem to have been comprehensively dealt with then. We seem to be dealing with them on an individual basis.

“Not to be a naysayer, but I believe there are matters going to be raised around ‘ring fencing’ because we have changed the taxation around the Business Licence from what was initially agreed. We had moved away from Business Licence being the form of taxation because of differences in what businesses paid, and the systemically important domestic banks moved to pay direct licence fees to the regulator.

“In 2022, we went back to a revised Business Licence. You had the matter with the insurance companies moving away from a premium tax to a Business Licence. The domestically important, systemic bank licensees who were paying to the Central Bank, they now have a revised Business Licence fee,” the Fidelity chief added.

“They have attempted to impose a similar licence fee on international banks and the domestic ones, but that has not been consistently applied. We have to be very careful not to address the symptom as opposed to the root.”

Explaining what he meant, Mr Bowe indicated that the best way to permanently escape the EU’s and all other tax-related ‘blacklists’ is for The Bahamas to introduce income-based taxation. “The issue we have, and if we were to put all cards on the table, the Government is certainly moving strongly to corporate income tax,” he told this newspaper. 

This, the Fidelity chief executive added, had been signalled by the “new business rules” unveiled by the Prime Minister during the 2023-2024 Budget debate. Mr Davis billed these as “encouraging better record-keeping” and “honest reporting” by Bahamian businesses.

However, the requirements for audited financial statements and “review statements” by independent accountants seemed to go much further than the top-line revenue certification previously demanded for Business Licence purposes. Several accountants at the time suggested this was a prelude to, and designed to prepare companies for, the transition to a corporate income tax.

They and others have acknowledged that it will likely take The Bahamas some three to four years to fully implement a corporate income tax once the decision, and Mr Bowe said: “If you look at the filing requirements, if you look at their improvements to the Business Licence regime, they are seeking to eliminate the difference between businesses that operate within The Bahamas and businesses that operate outside The Bahamas with international clientele”.

However, he added reform was “haphazard”, and significant “ambiguity” exists as to the Business Licence fee’s scope and whether all corporate entities are covered. “Using the Business Licence as a quasi-corporate tax is not going to be a solution,” Mr Bowe warned. “It will not be accepted by the international community. It will be seen as a band aid on a cancer or a form of harmful tax practice.

“There doesn’t seem to be consistency between administrations. The political parties don’t seem to recognise that government is continuous, and policy seems to change without regard to the commitments given by previous administrations. We have to demonstrate our commitment by having a well-documented tax policy that can stand the test of time and can survive the election process.

“If we continue to see changes in terms of administrations that fundamentally have different views of taxation, and not only have different views but seek to impose those views without regard to prior commitments, we are going to run into a situation where countries will ask: ‘Can we trust any commitments by any prior administration?” he added.

“We need to demonstrate we are abiding by a clear plan, clear guidelines and have the infrastructure to implement them, as opposed to committing to do things, putting in window dressing so it looks like there’s movement, but nothing can be validated and stands the test of time.”

Mr Bowe, who headed the private sector’s Coalition for Responsible Taxation at the time VAT was implemented in January 2015, said The Bahamas must develop a tax system that “complies with all the requirements” of the likes of the EU and OECD as opposed to solely focusing on tax information exchange and reporting.

Asserting that The Bahamas must get ahead of any potential blacklisting, he reiterated: “We know the reason we were blacklisted previously was the Business Licence regime and we assessed that. It’s been revised and put back to what it was, apart from removing exemptions, which has also been a challenge. We have to very careful we are not addressing the symptom as opposed to the root cause.

“The reality is that we can call it [the EU blacklisting] unfair if we wish, but if we consistently only answer the question asked we cannot be surprised when they ask questions we don’t have all the answers to. We should be asking for a complete list of questions, and devising responses and our strategy to each one to put ourselves on a more stable footing.

“Rules change, but at this point in time we are only responding to the immediate issue as opposed to the root cause. It’s not about getting off the blacklist in six months only to be reinstated. It’s about being comfortable and doing all the things asked to stay off the list.”

Urging the Government to come clean on its corporate income tax ambitions, Mr Bowe said it had likely not done so for political reasons. “This is one where we cannot play cat and mouse and cute,” he added. “If the intention is to look at a system of corporate income tax, and address the [OECD’s] Pillar One and Pillar Two initiatives, let’s do that even though it’s politically unfavourable.”