Wednesday, July 11, 2018
By NEIL HARTNELL
Tribune Business Editor
The private sector is being urged to "weigh in" and influence government policy on alternatives to the much-maligned business licence fee by providing hard, scientific data.
Edison Sumner, pictured, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chief executive, said the survey on Taxation of Businesses in The Bahamas gives the private sector "the opportunity to do something about it rather than standing on the side".
A major focus of the survey, released just prior to the Independence Day holiday, is to obtain business feedback on the best potential replacement for the business licence fee. Some form of corporate taxation, or a profit-based fee, are two of the alternatives under consideration as replacement for the existing turnover-based tax.
Mr Sumner said the survey results would provide data for the Government's consultants, the UK arm of the Deloitte & Touche accounting firm, on which to base their studies and recommendations for Bahamian tax reform.
"We've been asked, because we're the private sector's representative, to gather information from the business community on their impressions and opinions on the tax infrastructure of the country as a whole," Mr Sumner said of the survey, "but, more specifically, to look at whether consideration should be given to implementing some form of income or corporate tax as opposed to the current Business Licence fees."
He added that the business community is being asked to "weigh in" on whether these options were viable alternatives to the Business Licence fee, which is widely viewed as distortionary because it penalises high-turnover/low profit firms and either taxes companies into a loss or levies more than they make in annual profits.
The Chamber chief said the ultimate goal was to "put in the best and most viable tax regime we can", enabling the Government to collect all due revenues in the most efficient manner while allowing businesses to maximise their profits.
"This is one of those areas where the business community may be able to affect the policy of the Government going forward to determine, if we're looking at alternatives to Business Licence fees, if any other mechanisms should be considered to lessen the burden on the business community so businesses can operate more profitably," Mr Sumner told Tribune Business.
"We've been hearing, and advocating consistently, that the Business Licence structure is untenable, it's unsustainable for many businesses, and that many are paying more in fees than they take home in profits.
"This [survey] gives everyone a wonderful opportunity to weigh in and let us know if the approach the Government is taking is a viable approach and, if not, let's consider alternatives. That's one of the things the Deputy Prime Minister has challenged the Chamber on; to come back with our own recommendations. This is something pressing on the Government's agenda."
The Business Licence fee's calculation on gross turnover is viewed as penalising high turnover, low margin businesses while favouring low turnover businesses that are more profitable. Tribune Business has received complaints from numerous companies that they pay more in annual Business Licence fees than they do in profits, and/or that the fees push them into losses.
Michael Maura, the Chamber of Commerce's chairman, told Tribune Business before the 2018-2019 Budget that "a real hard look" was needed at reforms to the Business Licence fee structure, although nothing was announced then.
The Government appears to considering change in the context of wider potential tax reform, with Deloitte & Touche's work also focusing on the implications of impending World Trade Organisation (WTO) membership and the pressures on the financial services industry.
K P Turnquest, Deputy Prime Minister, told Tribune Business in a recent interview that the Government is aware of the Business Licence fee's "unfairness" - especially where high turnover, low margin businesses such as food stores and gas stations were concerned.
Emphasising that the Government remains committed to addressing this, Mr Turnquest also acknowledged the need for certainty and predictability with a Bahamian tax system that is frequently tinkered with in the annual Budget.
"We're very cognisant, if you will, of the unfairness of the tax," he said of the Business Licence. "This is one of the reasons we are having the study done to see how we can make the tax more progressive.
"It is an important consideration for us. This was one of the things we promised in our campaign; to look at the fairness of the Business Licence fee, particularly as it relates to high turnover, low margin businesses.
"We believe, fundamentally, that no tax should be so burdensome that it creates a negative cash flow and puts businesses into a loss. Whatever changes we make have to be incremental and be well thought-out."
The Chamber, in releasing the survey to its members, said: "Deloitte & Touche has been commissioned by the Ministry of Finance to perform an exploratory study on whether the existing Business Licence fee could be replaced by a profit-based fee or corporate tax. This is argued to be less distortive than the current Business Licence fee, as it is levied on profits rather than turnover.
"The objective of this study is to develop and evaluate options for replacing the Business Licence fee. This will include considering the tax base, the rate, the deductions and exemptions that may be applied, and options for reporting and collection. Deloitte & Touche will then estimate the viability of these options, including the potential revenue impacts, costs of implementation to government and businesses and the impact on the wider economy."
The survey is aiming to generate information that will be used to determine "potential revenues and the impact on businesses' activity and margins" from the various reform options, as well as the effects on various industries from a profit-based corporate tax.