By NEIL HARTNELL
Editor-in-chief of the Tribune
The Bahamas ‘cannot be complacent’ although yesterday they had more time to determine their approach to the G-7/OECD-led push for a minimum global corporate income tax rate of 15% .
John Delaney QC, a former attorney general, told Tribune Business it was beneficial that the Bahamas had apparently been given “more breathing space” to develop their response after Mathias Cormann, secretary general of the Organization for Economic Co-operation and Development (OECD), acknowledged that the implementation of the plan has been pushed back a year to 2024.
Speaking at the World Economic Forum in Davos, Mr Cormann said the previous timeline had been ‘very ambitious’ and ‘difficult talks’ were being held amid fears Republicans in the US Congress could scupper any deal – especially if they take control of both the Senate and House in the upcoming midterm elections.
“We deliberately set a very ambitious implementation schedule to keep the pressure on, and we believe this has helped maintain momentum,” the OECD chief said. “But I suspect it’s probably more likely that we’ll get to practical implementation from 2024.”
The delay comes just as the government presents its 2022-23 budget to the House of Assembly today. Prime Minister Philip Davis QC, in his mid-year budget speech several months ago, said the government was awaiting the results of a study by accounting firm Deloitte & Touche into the Bahamas tax system to determine how it should respond to the 15 percent of businesses. tax push, including whether business license fees should be converted into such a regime.
Mr Delaney, head of law firm Delaney Partners, said yesterday that the OECD secretary-general’s comments mean the Bahamas now has more time to work out what tax reforms – if any – are needed to adapt to the economic and fiscal competitiveness of this country in relation to the outside world. pressures.
“It means the government would have a longer period, an extended period, to determine how it wishes to go for our own national objectives and communicate that decision in one way or another, however it unfolds. , country and industries that will be affected,” he told Tribune Business.
Acknowledging the more time given to consult with the Bahamian financial services industry and critical sectors of the national economy, he added, “There is more time for the industry to articulate what their perspective may be. on the subject. This is a beneficial development, but we cannot be complacent.
“It’s not only to give us space and time to do the analysis and see which direction to go, but also to better appreciate the trend of economic growth. This gives us the opportunity to get more information and make a more informed decision.
Mr Delaney said converting the business license fee regime, which “has caused a lot of controversy”, into a corporate income tax was an obvious option for the Bahamas, but the ramifications required careful study before that a reform is decided.
Along with the Bahamas needing to ensure there is a “level playing field” when it comes to implementing changes, Delaney added: “As a general rule, taxes are unlikely to make our economy an attractive or efficient economy in which to do business and operate in. We should seek clarity and certainty, and reasonableness, with respect to our taxes.”
The private sector in the Bahamas has long called for the annual business license fee to be converted into a corporate income tax that is instead levied on net profits rather than gross income and turnover. The Prime Minister, in unveiling the mid-year budget, confirmed that such reform is being considered and assessed by the government given the global push for a corporate tax rate of at least 15 % to fight tax arbitrage by large multinational companies.
Business license fees, which are expected to generate some $101 million in revenue for the government in fiscal year 2021-22, are expected to increase to $150.376 million by 2023-24.
However, despite being an important source of revenue for the government, many private sector actors view business license fees as distortions. They are seen as penalizing high-turnover/low-margin businesses, such as grocery stores and gas stations, while favoring low-turnover/high-margin service businesses, as they are deducted from gross income.
Many companies also complain that they regularly pay more in business license fees than they earn in profits, or that it drives them into a loss-making position. Davis’ mid-year budget communication said his administration picked up where his predecessor Minnis left off by continuing Deloitte & Touche’s study of options for tax reform, including the imposition of tax reform. a corporation tax.
The G-7/OECD initiative has two components or “pillars”. The first = is presented by the OECD as ensuring “a fairer distribution of profits and taxing rights between countries with respect to the largest and most profitable multinational enterprises”.
This reallocation of taxing rights only applies to multinationals with annual turnover above €20 billion and profit margins above 10%, with particular emphasis on those who have benefited so much from the digital economy – like Facebook, Apple and Google. Only 25% of profits above the 10% threshold need to be reallocated.
And the minimum global corporate tax of 15%, which is supposed to generate an additional $150 billion in annual global tax revenue, only targets companies with an annual turnover of more than 750 million euros.