The Tribune

By ANNELIA NIXON

Tribune Business Reporter

anixon@tribunemedia.net

A Cabinet minister says the Government’s “balanced four-prong” economic and fiscal strategy has enabled it to “minimise the tax burden” and avoid imposing new and/or increased levies on the Bahamian people.

Michael Halkitis, minister of economic affairs, told the Society of Trust and Estate Practitioners (STEP) Bahamas conference that this approach has allowed the Government to cut the overall VAT rate from 12 percent to 10 percent soon after being elected to office and, now, slash the same tax further to just 5 percent for all uncooked foods only.

With the VAT food rate cut set to take effect from April 1, he added that the Government’s strategy of focusing on driving economic growth; enhanced tax enforcement, collection and administration; containing public spending to that it is largely flat year-over-year; and seeking out new sources of tax revenue was beginning to pay off and “we are on a positive trajectory”.

“Here in The Bahamas, we adopted a strategy - what we call a four-point prong approach - where we would achieve economic stability by promoting economic growth, improving revenue administration; that’s doing a better job of collecting the taxes that are on the books, containing expenditure and seeking new sources of revenue,” Mr Halkitis said.

“So far, we have experienced some success. We’ve seen debt-to-GDP go from just over 100 percent to 78, 79 percent. Now our goal is 50 percent by 2030-2031. And we’ve seen a fiscal deficit shrink from 13 percent to about one-and-a-half percent [of GDP]. So it’s a very good recovery.

“But every time I comment on these things, I say that we are cautiously optimistic, because we think even though we experienced double digit growth in the two years immediately as we recovered from the pandemic, and our growth rate is now reverted towards the longer term trend, we think that as long as we are experiencing a positive growth we will have a stable environment,” the minister said. 

“I say cautiously because, before, we’d always be worried about natural disasters, and then, of course, we have the health pandemic. But now we also have to be very, very conscious of, you know, changes in global policy as it relates to trade etc. And the impact that would have on The Bahamas, even though we’re not directly the subject of some of these policies that are tweeted out in the middle of the night. Eventually we are impacted.

“And the second thing I wanted to say about the responsibility of government, in addition to promoting a stable, predictable economic environment that would support business, is our role... to ensure that we remain globally compliant with all of the initiatives that come out from various places, so that we are not on any adverse listing that would impact business for the financial sector, giving rise to enhanced due diligence.

“So I think just at the high level, we view our job as promoting an environment that will enable businesses to succeed, and we think that we are on a positive trajectory,” Mr Halkitis added. “Our view is we want to minimise the tax burden. And so we do it in a balanced way. We took, you know, very early, we dropped the overall VAT rate from 12 percent to 10 percent.

“We took a little loan to do this as the recovery set in, and we began to see it in our finances. And so as time goes on, you know, we’re exploring other opportunities to do so without, you know, taking with one hand and, you know, giving with one hand and taking; taking on the other. So you might hear some more during the Budget debate.”

As for regulatory changes driven by global tax reform, Mr Halkitis said the Government had hired Deloitte & Touche to conduct a study on the implications for The Bahamas and its ability to “remain competitive”.

Alongside implementation of the Domestic Minimum Top-Up Tax, which gives effect to The Bahamas’ compliance with the minimum 15 percent global corporate income tax initiative driven by the G-20 and OECD, the Government is planning to introduce a package of tax and other fiscal incentives designed to enhance this nation’s competitiveness and attract new businesses and industries.

Mr Halkitis said this package is being finalised through a process of weekly meetings and discussions with attorneys. Further consultation will take place with the expectation that legislation to give these incentives legal effect will be in place before the 2025-2026 Budget is unveiled at end-May.

“What happened is when this initiative first surfaced some years ago, the first thing we did is we conducted a study,” the minister said of the 15 percent global corporate income tax. “And we looked at our entire taxation system; not only the impact on what they call in-scope companies with turnover of 750m euros or more.

“So we did a study. The information that we have is anywhere from 20 to 30 institutions would be in-scope. Then we published the green paper, seeking consultation from the public on how we should respond. We got those responses, we collated them, and then we moved ahead with legislation, again publishing it for consultation. So by the time the legislation got to Parliament we’ve had literally several years of consultation as well as direct interaction with some of those entities that would be in-scope.

“Our view was that, firstly, if our competitors and other jurisdictions are implementing this global tax, we don’t want to be first but we don’t want to be last either. And then anything we craft has to ensure that we remain competitive. So, very shortly, we’ll be bringing some incentive legislation to go along with the Domestic Minimum Top-Up Tax legislation.

“So throughout the whole process, direct communication with some of the companies that are in-scope. And so we think that the legislation we have is good, and we’re finalising the incentives to make sure that we remain competitive with some of these other jurisdictions.”

Mr Halkitis said 15 percent corporate income tax payments by Bahamas-domiciled entities that meet the 750m euros turnover threshold should start to be received by the Government during the 2025-2026 fiscal year that begins on July 1.