A former financial services minister Monday said global regulatory initiatives appear designed to force the Bahamas to adopt a corporate/personal income tax alien to its culture.
Ryan Pinder, who held this position in the Christie Cabinet from 2012 to late 2014, told Tribune Business that the likes of the European Union (EU) and OECD appeared intent on forcing the Bahamas and others to give up sovereignty over their national taxation systems.
“It seems to be that these international institutions and multilateral institutions want us to withdraw our national sovereignty in choosing our own tax regime,” Mr Pinder said.
“Differentiation of tax regimes is fundamental, and viewed worldwide as a sacred component of self-sovereignty. I certainly think these global pushes are done with a mindset to force countries that don’t have income tax into an income tax regime.”
Many in the Bahamian financial services industry believe that forcing the Bahamas to abandon its ‘no tax’ platform, and implement either a personal income tax, tax on corporate earnings or both, has been the ultimate goal of the Organisation for Economic Co-Operation and Development (OECD) and its G-20 patrons since the former’s ‘harmful tax competition’ initiative emerged in the late 1990s.
The OECD is now closer to achieving this objective than it ever has been, aided by the EU’s decision to use the existence of a corporate tax regime as one of the key determinants for whether it will include a country on its upcoming ‘blacklist’ set to be published on December 5.
The Base Erosion and Profit Shifting (BEPS) initiative, another OECD demand that the Bahamas must comply with by year-end, is also creating particular problems for this nation due to the absence of a corporate income tax regime.
While the Bahamas is preparing to commit to the minimum compliance threshold for BEPS, its ability to meet this is threatened because the OECD considers a corporate tax rate of 10 per cent or less to be a so-called ‘harmful tax practice’.
As a result, some in the financial services industry, including Bahamas Financial Services Board (BFSB) chief executive, Tanya McCartney, and others have said this nation needs to consider implementing a corporate income tax – both to shed the ‘tax haven’ label and enable it to participate in ‘double taxation’ and investment treaties.
Mr Pinder, though, yesterday warned that the implementation of any kind of income tax would “be exceptionally difficult” in the Bahamas – both for cultural reasons and the wider economic impact it would have.
“If you thought VAT was difficult, an income tax regime in the Bahamas will be exceptionally difficult,” he told Tribune Business, “as it’s contrary to the way we operate and who we are. From a cultural viewpoint, I think it would be a very difficult sell. And there’s a whole host of other considerations.”
Mr Pinder suggested that implementation of an income tax regime would have negative ramifications for domestic industries, especially Bahamian-owned manufacturers and producers, while also causing uncertainty for a significant proportion of the financial services industry.
“When you have an income tax, you will have to significantly lower import duties across the board,” he explained. “How does domestic industry compete if they don’t have tariffs.
“They can’t compete. We’re too close to Florida, and it’s easy to import a container at relatively low cost. There’s a whole host of domestic issues. There’s this whole list we have to take into consideration with the development of tax policy, and tax policy is one of the bedrocks of a sovereign country.”
Removing import duties on rival imports, Mr Pinder argued, would expose Bahamian-owned producers in industries such as water, drinks, cleaning materials and paints to rivals with entrenched competitive advantages – especially cheaper costs and price.
This, in turn, would affect thousands of Bahamian jobs plus local entrepreneurs who had been able to build their businesses through such protection.
Tax reform will likely be imposed on the Bahamas in any event; if not by the OECD and its surrogates, then the Government’s plan to accede to full World Trade Organisation (WTO) membership by 2019.
Existing import duties will have to be significantly reduced or eliminated as they are seen as ‘barriers to trade’ by rules-based regimes such as the WTO, but Mr Pinder yesterday said the Bahamas’ negotiators still have an opportunity to protect domestic producers.
The Graham, Thompson & Co attorney and partner, who also had responsibility for trade in the Christie Cabinet, suggested that the Bahamas needed to adopt the approach of “peak and valley tariffs”.
“You can bring your average tariff rate relatively low, but keep higher tariff rates to protect domestic industries, otherwise you will have a significant impact to your economy,” Mr Pinder told Tribune Business.
“We can’t run from the fact we’re a country sitting in the middle of global trade and commerce; we can’t deny we sit in the middle of a global economic environment, but we have to protect out domestic industries.”
Mr Pinder added that implementation of a corporate income tax would also raise questions as to whether the Bahamas could ‘ring fence’ the economy’s international segment from such a tax, levying it only on domestic businesses.
“If you’re going to implement corporate tax on International Business Companies (IBCs) holding assets in the Bahamas for non-residents, of which there are thousands, that industry will go away overnight and it’s a significant part of the financial services industry,” he explained.