Friday, February 3, 2023
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamas must reform a tax system that “squeezes blood from a stone”, a well-known banker argued yesterday, renewing his plea for greater “equity” via income-based taxation.
Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that the country’s regressive, consumption-based tax system means that it is effectively seeking “to extract more from those who have less” as the Government bids to increase its annual revenue income by $1.2bn over the next four years.
Speaking after the just-released 2022 Fiscal Strategy Report called for tax revenues to grow by 43 percent to more than $4bn by 2026-2027, he said the tax system’s nature was helping to worsen “the widening gap” between high and low income earners that was already exacerbated by the fall-out from the COVID-19 pandemic.
“Squeezing blood from a stone is what we’re trying to do by having a regressive tax system that focuses its attention on consumption based taxes,” Mr Bowe told this newspaper. “We are effectively trying to say: ‘Extract more from those that have less’. We really have to look at the concept of equity, and say those that have more have a duty to contribute more even if their use of government services and social services is less.”
Again strongly signalling his belief that The Bahamas must explore tax reforms based on a person’s ability to pay, such as personal and corporate income taxes, the Fidelity Bank (Bahamas) chief asserted that such radical changes would not drive investors, commerce and high net worth individuals away.
Instead, he argued that The Bahamas’ other attributes, including its US proximity and relative economic and political stability, will ensure this nation remains attractive to both local and foreign investors. “The environment that the Government provides, economic and political stability, enables people to make and earn higher incomes,” Mr Bowe said.
“Tell them to do the same thing in an unstable country with a high inflation environment. A small population is accumulating the wealth. We see that happening in The Bahamas with the widening gap between the ‘haves’ and the ‘have nots’.” The consumption-driven nature of this nation’s VAT and Customs duty-reliant tax structure means those on lower incomes continue pay disproportionately more of their income in taxes compared to their wealthier counterparts.
Most nations rely on income tax, both personal and corporate, as their government’s primary source of revenue since it is viewed as a progressive levy directly linked to ability to pay. Those earning more pay more in tax compared to those on lower incomes, thereby upholding the system’s perceived equity and fairness.
But The Bahamas, which has long cherished its tax neutral platform and the absence of any form of income tax, has bucked this world trend. While income tax was one of the alternative options to VAT, the last Christie government ultimately rejected it due to the fact it has no history here and, more importantly, the extra costs and bureaucracy involved in setting up and administering such a system.
Some cynics, though, suggested that income tax was also turned down because it would force all Bahamians to declare their annual income - thereby exposing all those seemingly living above their means. The Government’s just-released Fiscal Strategy Report 2022 acknowledged Mr Bowe’s concerns by saying the “fairness” of taxes is kept under constant review, although no specific reform measures were detailed.
Among the proposed legal and administrative work, the report said, is a “review of existing laws to determine opportunities for modernisation and simplification of tax legislation, having regard to efficiency, fairness and stability of taxes, and to achieve conformity with best practices”.
Simon Wilson, the Ministry of Finance’s financial secretary, also confirmed that the Government is hoping to release a so-called “green paper” consultation document by the 2023 first quarter’s end outlining options for addressing the global push for a minimum 15 percent corporate tax rate.
The Bahamas is among the 133 nations that have agreed to implement this, although its introduction has been pushed back by at least a year until 2024. The initiative is designed to ensure the profits and revenues generated by multinational enterprises (MNEs) with global turnover exceeding 750m euros are taxed in the nations where they are generated, rather than being artificially shifted to low-tax countries as part of avoidance and evasion strategies.
This has potentially important implications for taxes such as the existing Business Licence fee, with the Government having hired the Deloitte & Touche accounting firm to assess the consequences. Meanwhile, Mr Bowe criticised past administrations for failing to engage the Bahamian people in a national discussion on taxation and its importance in providing essential public services.
“I don’t know why political class has a fear of speaking to the populace about the need to render unto Caesar what is due to Caesar,” he told Tribune Business. “You can only provide services as a government when you have revenues.....
“The conversation would not be pessimistic; it would be realistic, educating the population that you get what you pay for. If you have low taxes, you have minimal government services. If you want big government or extensive public services your tax rate has to be commensurate with what is being funded.”
Mr Bowe also urged the Government to stick to the fiscal targets and road map set out in its latest Fiscal Strategy Report rather than seek to constantly change them. “The point I bring in, which is critically important, is that in the Bahamian vernacular mouth can say anything or documents can say anything.
“When we look at a fiscal strategy going forward for the next five years, it should not be one that changes materially every year if the projections are realistic and based on data. To-date, we sometimes seem to put in optimistic projections where the view is that we’ll just revise them later on, push the date of reform as far out as we can, and keep the people happy by telling them what they want to hear rather than what the realities are and let them know we have a challenge where we all have to contribute to digging ourselves out of the fiscal hole we find ourselves in.”
Comments
ThisIsOurs says...
Agree. The problem is when they implement income tax, they will go on a wild spending spree and we will end up paying income tax, customs duties and 15% VAT with annual hikes in govt fees. The problem isnt the regressive tax, it's mismanagement
Posted 3 February 2023, 4:29 p.m. Suggest removal
BONEFISH says...
The main modes of taxation in this country are consumption based, customs duties and vat The burden of taxation in this country falls disproportionately on the backs of the people who are least able to pay. That is what a person who has a bit of understanding of economics told me. The Bahamas has a major political management and governance problems. However this system has to change so people pay taxes based on their ability to pay.It is simply common sense and sound economic principles
Posted 4 February 2023, 8:39 a.m. Suggest removal
LastManStanding says...
Tbh I don't quite understand this take that introducing an income tax is somehow going to magically solve the problems of those less economically well off. The poor are still going to have pay all of the pre-existing taxes like VAT, duties, RPT (if not on the Family Islands), etc. while they are now going to be taxed on their already small salary (if they have one) plus funding received through social assistance or gifts ("income" literally means all income, not just your salary). We are going to help the disabled and elderly by taxing their NIB? Is taxing those who can't work due to injury really going to help their financial situation any? The really great part about consumption taxes is that, aside from certain expenses like food or medical, you can control how much you pay.
The methods that work in America or Canada are not going to work here, the Bahamas does not have a robust enough middle class to sustain an income tax regime without pushing the poor even deeper into poverty. Our economic pyramid is "bottom heavy" and it's not like the well connected in the top 1% will pay their part anyways. How many don't even bother to file their disclosures on time? This is not even considering the economic permanent residents that spend more than six months in this country, they are not going to remain here under an income tax regime.
I concur with ThisIsOurs, we have a theft and fiscal mismanagement problem, not a taxation one. Tbh these governments have zero moral authority to even utter the phrase "new taxes" when all they do is steal and pilfer whatever they rob from us now. We can put in income tax, inheritance tax, or whatever stupid tax the government concocts and in another couple of years we will see the trial balloons start going up in the newspapers about the need for new taxes to "reduce the national debt" (a euphemism for "we need more money to steal"). Only the dumb and ignorant haven't caught onto the scam at this point.
Posted 4 February 2023, 6:56 p.m. Suggest removal
Porcupine says...
If the government agrees that an income tax is less regressive than our present system, they would need to eliminate VAT and some of the other odorous taxes. The main point to take away from the article is that every tax dollar taken out of the economy is a dollar not circulating in the real economy. Yes, we have a terrible theft, accountability and efficiency problem. Worse, we have a huge ignorance problem throughout our society. God is not a substitution for learning. Until we can carry on an intelligent conversation on a number of levels, and begin electing people who can think, and are honest, we can go nowhere.
Yes, we have a government spending problem. But, we also have a consumer driven local economy, which is being overburdened by the heavy and regressive taxation regime.
Our economy is being strangled, and there do not seem to be enough educated people to speak up about it.
Only when it becomes hugely apparent that we are crashing our economy and turning The Bahamas into a failed state for all to see, do our leaders have something to say.
We are headed in that direction now. But, we do not have decent leaders. None in sight.
Interestingly, so many of us cherish the bible, yet cannot seem to be able to read and comprehend a bit of it.
How does a rich man get to heaven? The same way as a camel gets through the eye of the needle. And, let's just pretend we don't understand all the other biblical "obligations" to our brothers and sisters. But, our money grubbing pastors don't seem to mind, do they?
In my estimation, we have a national IQ way, way below average, and a national maturity level of a 6 year old. There is not one national problem that can be solved under these conditions. Not one.
Posted 5 February 2023, 4:45 a.m. Suggest removal
ThisIsOurs says...
**If they dont manage money properly it wont matter if taxes are regressive or progressive**. I guarantee you with our current political system, if they ever reach of surplus on this blood money, however unlikely that is, the next thing you will see is all the cronies getting multi-million dollar contracts followed by the budget debate announcing the need to increase the tax rate. Remember the caller who proudly pronounced, "*yall dont get mad with me, my govt in and I gettin contract.*". Not only did they get a contract, they got crown land, their govt in power.
..actually they dont even need a surplus, their eyes grow big when revenues increase
Posted 5 February 2023, 6:17 a.m. Suggest removal
BONEFISH says...
@ This is Ours. This current political system is the Westminister system,which we got from the British. It is the same system they are currently using in the United Kingdom.
Posted 5 February 2023, 4:31 p.m. Suggest removal
ThisIsOurs says...
Ah yes, I'm specifically referring to how our candidates are chosen and the follow on effects. because it's the root cause of the result we get. That "political system". The whole non strategic mess that puts people who can't read, think or plan, and sometimes absent of one ethical bone in their body, to lead a nation. But maybe it's part and parcel of westminster...
Posted 6 February 2023, 12:49 a.m. Suggest removal
hrysippus says...
There has been obvious and egregious fiscal mismanagement in every administration since a majority rule government got into power, The elephant in the economy's dining room is the tens of thousands who are employed by the state, is it really 40% of the total workforce? . State employed workers do not create wealth in an economy, they only absorb the wealth created by the private sector. A better alternative, less bureaucrats needed, to income tax, is estate tax, what used to be called death duties. Simply put 35% of everyone's estate is remitted to government upon death. If this ever happens then I predict many more visits by wealthy elected politicians to Cayman and the Turks; that both are offshore tax havens used by rich people to minimize taxes will purely coincidental.
Posted 5 February 2023, 6:48 p.m. Suggest removal
Proguing says...
More taxes will just result in more wasteful spending. Have you been to the UK lately? They are doing worse than Russia. Yes you heard that right:
https://www.thetimes.co.uk/article/uk-e…
Posted 6 February 2023, 11:03 a.m. Suggest removal
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