Article

BAHAMAS: Business ‘uneasy’ over tax strategy’s absence.


Added on 06/06/2019

As published on tribune242.com, Wednesday 5th June, 2019.

 

Bahamian businesses are “anxious and uneasy” over the lack of a “clearly defined tax strategy” from the government, the Chamber of Commerce’s chairman warned last night.

Michael Maura told Tribune Business that while the private sector had been able to “take a breath” due to the absence of new or increased taxes in the 2019-2020 budget, many companies are “still unsettled” due to concerns over “what the future has in store”.

He added that the chamber had also wanted to “see more” reforms targeting the ease and cost of doing business in last week’s budget, particularly when it came to the domestic economy, and called for further improvements in this area to be “a precursor” to any future taxation increases.

Despite the concerns, Mr Maura said the budget contained “a lot of positives” - especially when it came to the government’s efforts to enhance tax collection efficiency and its focus on boosting start-ups, small businesses and entrepreneurs.

He also hailed the imminent creation of the Fiscal Responsibility Council as a key element in efforts to hold the government accountable for its financial management, adding that the Minnis administration was on the right track with its plans to switch the public sector’s finances to accrual-based accounting.

And, despite having wished for more, Mr Maura said the continued roll-out of Customs’ Electronic Single Window via its ‘Click2Clear’ initiative will both enhance tax revenues by combating fraud and corruption while also boosting trade efficiency and clearance of goods.

Still, recalling last week’s unveiling of the Government’s 2019-2020 fiscal plans, the Chamber chairman told Tribune Business: “As I reflect a bit further, one area that jumped out at me - notwithstanding the fact the Budget as presented did not include any increased taxation - is that the business community is aware that the Government continues to be under significant pressure to develop a new tax strategy and specifics to the strategy.

“I didn’t see where there was any clear indication of what that taxation strategy is. There are still people wondering if they’re going to be surprised by corporate income tax at some point in the future, or if they’re going to be surprised by personal income tax at some point in the future.

“The lack of a clearly defined path for a tax strategy, which includes comprehensive, sustained public engagement around what that tax strategy is, from a business perspective - while there’s a sense of probably being able to take a breath in light of no new taxes being introduced, there’s still very much an uneasiness around what the future has in store in terms of taxation. That’s still unsettling and concerning to the business community.”

The Government had, with private sector support, previously hired the Deloitte & Touche accounting firm’s UK arm to conduct a comprehensive review of the Bahamian tax system. However, K P Turnquest, deputy prime minister, told Tribune Business earlier this year that the effort had been put on hold as a result of The Bahamas’ urgent need to respond to the European Union (EU) and Organisation for Economic Co-Operation and Development’s (OECD) anti-corporate tax evasion offensives.

This highlights how Bahamian tax policy has largely been conducted in an ad-hoc manner by several administrations, with long-term planning made difficult - or even impossible - by the need to respond to both external pressures and the Government’s own revenue needs. This has often resulted in sudden increases and adjustments that impact specific industries.

Consistent, seamless tax policy is often a critical element in fostering private sector confidence and job-creating investment. However, many observers will argue that Bahamian tax policy has been anything but in recent years, especially given that the whole economy was hit by VAT’s introduction and subsequent hike to 12 percent within the space of three-and-a-half years.

Mr Maura said the Government’s decision to avoid any further taxation shocks with its 2019-2020 Budget had been “well received”, but added that the Budget seemed to lack specifics when it came to “a very committed timeline” for starting and finishing ease of doing business improvements.

And, while acknowledging that foreign direct investment (FDI) was “critical to our economic prosperity”, the Chamber chairman called for a greater focus on government agencies that interact heavily with the domestic economy - such as the Registrar General’s Department - when it came to ease of doing business reforms.

“The Bahamian people are very much waiting on improvements to these government services, and how they’re going to benefit from a small business operator perspective,” Mr Maura told Tribune Business.

“We have been talking about Business Licence filings for a couple of years, and also improvements in terms of efficiency with respect to engagement with the Registrar General’s Office. That seems to have been unintentionally overlooked, or there’s no clear plan around that, speaking to everyday things that touch small and large Bahamian business operators.”

While The Bahamas “needs to do what we can to make things better” when it comes to government services, Mr Maura said Mr Turnquest had himself highlighted the need for urgent ease of business-related policy reforms when he praised the Chamber-commissioned Oxford Economics report on the potential impacts from joining the World Trade Organisation (WTO).

“Seeing how he brought it up, it highlights the urgent need for substantial policy reform around the ease of doing business, around the regulatory framework, and around the licensing of businesses,” he added.

“All these things are necessary for a well-functioning, efficient and equitable business environment. Tying it back to what I started off on, this anxiety about what the future holds with taxation, all governments do seem to raise taxes at some point.

“We’d expect and hope that a real strong push around making it less expensive to do business will be a precursor to any discussion around increasing taxation. Around the ease of doing business we’d have hoped to see more around that [in the Budget].”

Still Mr Maura, who is chief executive of the Arawak Port Development Company (APD), said the Government deserved credit where it was due. “For many reasons I look forward to the Click2Clear launch, and also the introduction of a comprehensive modern risk management protocol which provides greater trade efficiency while enhancing the electronic review and clearing, or alternatively the electronic flagging of suspect shipments requiring secondary screening at the port of entry,” he said.

The Chamber chairman also backed the Government’s decision to increase cruising permit fees, but described the $413.82m subsidies due to loss-making state-owned enterprises (SOEs) in the upcoming fiscal year - representing 15.4 percent of total recurrent spending - as “alarming”.