• Ex-DPM urges ‘rush to finish’ over reform options

• As minimum global corporate tax push gains pace

• Govt must be ‘aggressive’ as Bahamas is behind

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former deputy prime minister yesterday urged the government to “rush to the finish” on developing tax reform options, warning: “It would be naive to think we can continue as a ‘zero tax’ nation.”

K Peter Turnquest, who resigned as minister of finance in late November 2020 to fight “unfounded and untrue claims” by Sky Bahamas’ main financier, told Tribune Business the Minnis administration needed to move “very proactively and aggressively” to safeguard the Bahamian economy as momentum for a worldwide minimum corporate income tax gathers pace.

Arguing that The Bahamas “should have been further along, quite frankly” in developing tax alternatives that will ensure it complies with any global standard that emerges, he conceded that the issue creates “some level of concern” for maintaining the country’s economic competitiveness and that of its financial services industry.

With the newly-elected Biden administration last week throwing its support behind other G-20 nations and the Organisation for Economic Co-Operation and Development (OECD), which is leading the push for a minimum global corporate tax rate, Mr Turnquest said The Bahamas may soon have to “find our value proposition beyond being called a low tax jurisdiction”.

But, rather than falling into despair over the latest external pressures, he argued that The Bahamas must view the situation as “a glass half-full and take advantage of opportunities to find a [taxation] system that works” in this economy’s interests.

He agreed that one reform option involves converting the business licence fee regime into a corporate income tax, branding the former “inherently unfair and unjust” as it forces many Bahamian companies to pay more to the government in taxes than they make in annual profits.

Marlon Johnson, the Ministry of Finance’s financial secretary, declined to comment yesterday when contacted by this newspaper and referred it to Senator Kwasi Thompson, minister of state for finance. The latter said the government is “monitoring” developments but declined to

comment further.

However, it now appears inevitable - and only a matter of time - before a minimum global corporate income tax rate emerges, with corresponding pressure on all nations to conform, after the US government last week threw its support behind efforts to achieve a consensus on the issue. The International Monetary Fund (IMF) also backed the initiative.

The Biden administration’s move is a marked change from the stance taken by its Trump predecessor, which was more focused on allowing sovereign nations to set their own tax rates and opposed to European efforts to impose a so-called “digital tax” on US multinational giants such as Amazon, Google, Facebook and Apple.

However, the newly-elected Democratic government sees a global minimum corporate tax as critical to preventing such companies from minimising their tax burden via creative structures that shift profits and revenues to low-tax nations such as The Bahamas and other international financial centres (IFCs). 

Its view, like that of the OECD and high-tax European nations such as France and Germany, is that a global minimum will prevent a so-called “race to the bottom” on tax rates. Pascal Saint-Amans, head of tax administration at the OECD, told the UK’s Guardian newspaper: “What the US has put on the table … [is saying] we want the rest of the world to follow, we kill tax havens. The game is over. Let’s move to a minimum agreed level.”

Janet Yellen, the US treasury secretary, last week pushed for a minimum global corporate tax rate of 21 percent  - something that would represent a giant, potentially unsustainable leap for nations such as The Bahamas, which has no personal or corporate income tax.

Even World Bank executives suggested that 21 percent would be too much. And developing a global consensus on the issue may take time, even though the G-20 and OECD are pushing for one by summer 2021, given the disparities in existing rates. While the US presently enjoys a 21 percent corporate tax rate, the UK is at 19 percent and Ireland at just 12.5 percent, for example.

However, acknowledging that these efforts have potentially seismic consequences for The Bahamas should they come to fruition, given that it has long based its economic competitiveness on being a ‘no tax’ jurisdiction, Mr Turnquest said a “first phase” tax reform study had been completed before he left the Ministry of Finance in late 2020.

Asserting that the ministry already realised “the pressure being put on zero tax and low tax jurisdictions was unrelenting, and not likely to abate any time”, he added that the emergence of the global minimum corporate tax rate issue sparked further internal government discussions on “whether the tax system of The Bahamas is going to be compliant with global practice going into the future”.

“We fully anticipated this would come along,” Mr Turnquest told Tribune Business. “We started to have internal discussions about the tax system and how to adjust the tax system to whatever comes along so we remain compliant.

“At the end of the day, it would be naive to think we can continue as a zero tax jurisdiction. The support globally is not there for that, and the reality is that the tax base will be affected one way or another - whether by some level of taxation or be impacted by withholding rates that affect our international transactions.

“The Bahamas ought to rush to the finish on its tax models so that we have options we can evaluate as a country and determine what’s in the best interests of the domestic and international economy, and define the process.”

He conceded that efforts to end tax competition, and create a so-called global ‘level playing field’, “gives us some level of concern” in The Bahamas as it threatens to eliminate an advantage this nation has exploited for decades to lure foreign direct investment (FDI) and financial services clients to the jurisdiction.

And the former deputy prime minister also warned that companies headquartered in The Bahamas, but doing business elsewhere, could be suddenly placed at a competitive disadvantage if this country is forced to implement a minimum corporate tax on their profits.

“It’s a very significant issue that we have to look at, and I encourage the Government to look at that in a very proactive and aggressive way as, quite frankly, we should have been further along with our planning in respect of this,” Mr Turnquest said. 

“The fact of the matter is that in order for us to be globally competitive we’re going to have to find a way to get along in the world and find our value proposition beyond being called a low tax jurisdiction.... It’s just now a matter of finding tax neutrality so that everybody is subject to what may be perceived as a minimum tax.”

Mr Turnquest voiced optimism that The Bahamas, and its financial services sector, were up to the task of adjusting their business model yet again in the face of renewed global demands. “We have the opportunity to remove ourselves from all this suspicion of being a tax haven or sheltering income from taxes and the like,” he added.

“I believe we ought to look at it as a positive and move to define, or redefine, our position on our terms before we’re forced to take a position. It’s a matter of looking at it as a glass half full and taking advantage of opportunities to find a system that works.”

Calling for The Bahamas to get ahead of international initiatives, he added: “Whenever you are forced into a position you inevitably end up being on the weak side of the table, but if you have a defensible position in terms of meeting the global standard you are in a much stronger position and are able to promote it to the international community.”

Mr Turnquest said determining whether the current Business Licence regime, which is levied on gross turnover, could be converted into a corporate income tax on profits, would be “a useful discussion”.

He added: “Let’s face it: The current Business Licence fee is unfair. You can end up making a loss and paying the Government tax revenue. It’s inherently unfair and unjust. Converting that system to some sort of net corporate tax with minimum deductions makes sense in my view.

“But what rate of tax has to be charged to create neutrality is a topic for discussion, and how to administer and apply that tax is a topic for discussion. We have to get on with that work, whether we’re forced to or we’re proactive.”