Letter To Financial Secretary On Green Paper

Sep 20, 2023

Mr. Simon Wilson
Financial Secretary
Ministry of Finance
Sir Cecil Wallace-Whitfield Building West Bay Street

Nassau, N.P., The Bahamas

Dear Mr. Wilson,

His Majesty’s Loyal Opposition appreciates the opportunity to provide feedback on the government’s Green Paper on Income Tax. We are hopeful that our feedback will be accepted and incorporated into the tax policy framework.

What follows are our observations and recommendations:

1) Given the country’s express commitment to the Global Minimum Tax initiative, the appropriate legislation and enabling framework to cover qualifying firms must be established and implemented within the agreed timeframes. Our understanding is that this would be revenue positive for the country as this would require massive multinational companies which generate revenue in The Bahamas to pay the proportional tax share inside the country.

2). We support the fulsome reform of the current business license regime that would abolish the current arrangement that is based solely on gross receipts. The reformed tax regime should seek to eliminate taxes on audited businesses posting losses, and at the same time reduce the unfavorable treatment to high turnover/low margin businesses when compared to low turnover/high margin businesses.

3) Bahamian Micro businesses with turnover under $100,000 per year should not be subject to any form of business license fees or taxes. Bahamian small businesses with turnover under $1 million should have the option to pay a straightforward set fee based on a structured and tiered system.

4) The resulting white paper on business tax reform must develop and express specific tax incentives that provide targeted tax relief to Bahamian businesses that commit to material investments in domestic expansion, hiring of underrepresented Bahamian employees (i.e. Young people, the impoverished, the disabled, etc) or who make contributions to civic initiatives.

5) The business tax reform effort must seek to ensure that the effective tax rates be calibrated to enable the elimination of a multitude of minor transactional taxes and fees inherited from a different era. This will improve the ease of compliance and ease of doing business, and at the same time allow for more targeted and effective use of public audit resources to maximize tax yield.

6) The reform effort must respect the tax regime that forms the basis of the Freeport zone in Grand Bahama and as such operations in the Port area should remain free of any direct business tax levy.

7) It is impossible to consider options for business tax reform outside of a clear understanding of the fiscal targets to be achieved as part of this reform. On this we restate our preliminary critique of the green paper. The green paper presents four options that havewidelydivergentfiscaloutcomes. Toallowforappropriatefeedbackandusefulinput into the process, the government must clearly state its intended fiscal and economic expectations upon implementation of the reform efforts – i.e. what does the government need and expect the business tax to contribute to the Treasury and to overall macroeconomic performance? Does the government need and want the proportionate contribution from business tax to the revenue base to remain the same? To increase? To decrease? To enable ourselves and others to provide specific recommendations on which options to consider, the government must articulate and quantify the desired fiscal and economic outcome from the planned reform effort.

8) We again restate that while we support the ongoing reform of the business tax regime, we recommend that the next round of consultation on corporate tax be incorporated into a broader document that speaks to the full spectrum of tax and expenditure reform.

There is broad recognition and likely consensus that as a country, our fiscal and economic policy framework must accomplish the following:

A) move the country toward the target 50 percent debt to GDP ratio;
B) ensure efficient, judicious and transparent spending of taxpayer money; C) facilitate sustained and inclusive economic growth;

D) stimulate economic activity and progress in underdeveloped Family Island communities;

E) provide expanded opportunities for Bahamian entrepreneurship and ownership within the economy;

F) maintain good standing as a responsible international financial centre;
G) reduce the current inequitable tax burden on the Bahamian middle class and the poor;

H) stimulate economic activity and progress in depressed urban centres and communities of great historical significance;

I) stimulate economic growth and development through intentional and targeted import substitution strategies both in food and non-food sectors;

J) forge and strengthen linkages between tourism and other sectors to maximize local benefits.

We maintain therefore that any further discussion on business or corporate tax must be a sub-component of a broader fiscal and economic reform effort. Simply considering a move to Bahamian corporate tax outside of the necessary fulsome dialogue and consideration of broad-based structural reform will not allow the government to consider the overall implications and possible adverse outcomes that could accompany a partial reform effort.

At this stage, we wish in particular to point to the absolute necessity of a focus on public spending reform. The government is presently increasing spending in unprecedented and possibly unsustainable ways. The budget for fiscal year 2023/2024 is seeking to increase total spending – recurrent and capital – by some $804.5 million as compared to fiscal year 2018/2019 – the last fiscal year before the twin economic calamities of Dorian and the Covid-19 pandemic. With no immediate contingencies requiring ongoing ramped-up spending, we are concerned with the sharp growth of public spending. The resulting white paper must speak to efforts to contain public spending and maximize the efficiencies of current spending.

An integral part of tax reform must be the ease with which taxpayers can digitally interface with government agencies, especially tax collection agencies. Furthermore, the government systems must be able to capture, archive, analyze and report statistics and financial data quickly and in ways that help policy makers to have timely access to relevant data at their fingertips to make time sensitive assessments and decisions. Urgent, comprehensive digitization of our government and related systems must take place.

Thus, it is our earnest and steadfast recommendation that the next iteration of the tax reform paper include a section on the specific policy measures that will be put in place to contain spending and radically improve public sector efficiency – with the accompanying full implementation of related transparency and accountability mechanisms.

Without such an undertaking, we submit that no consideration should be given to measures that place an additional tax burden on Bahamians individuals and businesses.

We note for clarity that this submission is a response to the Green Paper on tax reform. The Free National Movement has additional views on the specifics of broader fiscal, tax and spending reform that the party will continue to articulate in a proactive fashion in appropriate forums, and in response to future consultations sought by the government.

We will also continue our ongoing consultation with Bahamian small and large businesses, entrepreneurs and citizens to ensure that our policy positions reflect their views and interests. We are grateful to all the people and businesses that have contributed to this response during our current round of consultation.

Hon. Michael C. Pintard, M.P.
Leader of His Majesty’ Loyal Opposition

Cc. Media Houses ————————-

31 July, 2023

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