‘Nothing to lose’ on 5% corporate tax

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian financial services provider yesterday argued that this nation should smash “conformity” by adopting a low-rate 5 percent corporate income tax, asserting: “We have nothing to lose.”

Paul Moss, Dominion Management Services’ president, told Tribune Business that the Bahamas would be signing away any possibility of establishing a competitive advantage if it followed the herd and adopted the 15 percent global ‘minimum’ rate being pushed by the G-20 and Organisation for Economic Co-Operation and Development (OECD).

Arguing that this “makes no sense”, he said The Bahamas should instead “set our own course” and opt for a lower-rate tax that can be increased in stages if necessary to attract increased financial services business to these shores and grow the economy.

It is unclear whether such a strategy will work in practice but, with the Government having released its ‘green paper’ on corporate income tax reform seeking feedback by end-August, Mr Moss told this newspaper: “I think obviously we’re making a mistake, in my view, to take the blanket approach suggested to the Government.

“I think that’s the wrong approach. They should have an approach where the rate is much less than the 15 percent being contemplated. We have to do what’s in our best interests, and not in the best interest of other countries. Conformity is not in our best interests. Taxation is about competition. We cannot be in competition in a cartel that sets the stage as a certain percentage. It makes no sense to me.

“I think we should start off at a much lower rate, at 5 percent and, if we see it makes sense, increase it incrementally. But to start at 15 percent makes no sense. It’s going to take away our competitive advantage and makes no sense.”

The G-20/OECD are pushing for all nations to adopt a 15 percent ‘minimum’ global corporate tax as a means to counter tax evasion and avoidance by large multinational groups, who are able to exploit the digital economy to switch revenues and profits to lower tax jurisdictions where they were not earned.

One potential complication for Mr Moss’ proposal is that The Bahamas is one of 140 nations that has already signed on to comply with the G-20/OECD initiative, so any introduction of a rate lower than 15 percent could be viewed as this nation breaking its word and commitment.

In addition, the initiative, which is currently aimed at corporate groups and their subsidiaries that have a minimum annual turnover in excess of 750m euros, also allows the ‘home’ jurisdictions where these entities are headquartered to impose a ‘top-up’ tax to take the rate to 15 percent if the affiliates are taxed at a lower rate by foreign nations.

In practice, this would mean that should The Bahamas adopt Mr Moss’ plan, it would likely give up tax revenues that could have been earned from these multinational groups to their home country jurisdictions. However, the Bahamian financial services provider argued that attracting business, and generating economic growth and jobs, should be the priority rather than any focus on tax revenues.

Admitting it was unlikely that his suggestion will be adopted, the Dominion Management chief said of the Government: “They’re under peer pressure and have to put on their big boy pants. I don’t think they have the wherewithal to withstand the pressure being placed on them. They capitulate every single time.

“This is a corporate tax rate across the world. The Bahamas will have no competitive advantage. If you look at the banking infrastructure here there’s no comparison compared to developed countries that have these things at their finger tips. We have to be sensible about this. Competition is business.

“If someone goes around to all the retailers and says: ‘Your mark-up is only 10 percent’. No one does that. There has to be a way to drive more business to your store. We are a nation and have our rights to be able to do that. We should tax for ourselves unless The Bahamas is going to cede its sovereignty,” Mr Moss continued.

“We should set our own course and look at it as something beneficial for our own development. I don’t think it would be difficult, and that’s what we have to determine for ourselves, but we’re going to go along with whatever they suggest. We have nothing to lose, nothing to lose, nothing to lose.”

Asked whether he planned to supply his feedback to the Government, Mr Moss said: “I’m going to be honest with you. Since 2000, when I was very active in that, I saw the approach being taken by the Government and resigned myself to that. I keep out of the Bahamas Financial Services Board, I’m not going to waste time putting things together and have it shot down because these people are going to do what they want to do.”

The long-awaited ‘green paper’ on “corporate income tax strategies for The Bahamas” reveals that none of the four corporate income tax options being considered will have a positive impact on Bahamian economic growth, employment, foreign and domestic investment with the fall-out negative in all bar two instances.

The Davis administration, following studies by the Deloitte & Touche accounting firm, said it has to consider “the trade-off between raising government revenue at the expense of economic activity” in all four scenarios as it mulls historical changes that will potentially eliminate Business Licence fees for most companies and replace them with a corporate income tax.

The Government’s ‘green paper’, which is dated May 17, 2023, sets out the first option as merely introducing a 15 percent corporate income tax for all Bahamas-based entities that fall into that 750m-plus turnover category while maintaining the status quo for all other companies.

While that would have zero impact on the country’s economic growth and unemployment rate, the paper estimates it would cause foreign direct investment (FDI) and domestic investment to contract by 0.3 percent and 0.1 percent, respectively.

The second and third options, described as “more nuanced” because of the better balance they strike between tax revenue and economic impact, are those the Government indicates it is giving more serious consideration to. The second, labelled as “a soft introduction”, would introduce the same 15 percent rate for all those caught in the G-20/OECD net and also levy a 10 percent corporate income tax on all other businesses “to maintain regional tax competitiveness”.

The third option, branded as “simplicity driven”, would exempt or carve-out small businesses earning less than a $500,000 annual turnover to leave them still paying the existing Business Licence fee. Bahamas-based entities in groups that meet the G-20/OECD threshold would pay a 15 percent corporate income tax, and all other companies generating more than $500,000 would pay a 12 percent rate.

The final option, which will generate the greatest revenue increase for the Government but also inflict the harshest economic impact, is to simply impose the 15 percent corporate income tax rate on all businesses with a turnover greater than $500,000 per annum and a 10 percent on small and medium-sized enterprises earning less than that.

Comments

ExposedU2C says...

This idiot Paul Moss condescendingly thinks Bahamians are truly stupid. We opened the door to a 7.5% VAT rate which was then increased by our tax hungry corrupt politicians in the blink of an eye. And we still have most of the import duties, etc. that VAT was suppose to replace. Now brain-dead Moss proposes we open the door to a small rate of income tax. It doesn't take a rocket scientist to figure out what will then happen next. That small 5% income tax rate he speaks of would grow in a heart beat to be at least 15%, probably even more.

Posted 6 July 2023, 1:54 p.m. Suggest removal

donald says...

how many different taxes do you need? import duty, VAT, business lic, real property tax. If corp tax is initiated , I close shop.

Posted 6 July 2023, 10:52 p.m. Suggest removal

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