Income tax is “not on the table”

MINISTER of Economic Affairs Michael Halkitis. Photo: Donovan McIntosh / Tribune Staff

By NEIL HARTNELL

Editor-in-chief of the Tribune

nhartnell@tribunemedia.net

A Cabinet minister said yesterday that income tax was “not on the table”, although he appeared to leave open the possibility of replacing the business license fee with an enterprise version.

Michael Halkitis, addressing the Institute of Chartered Accountants of The Bahamas (BICA) Institute of Chartered Accountants (BICA) Accountants Week seminars, confirmed that the government was once again pursuing a study of the country’s entire tax system, although it made no commitments as to the likely outcome or potential reforms.

Responding to accountant Pedro Delaney, who said he had personally “long thought that a progressive tax structure, and in particular income or corporate tax, would have benefited the Bahamas,” the Minister of Economic Affairs revealed that earlier research was dusted off again.

“A study was commissioned a few years ago on the entire tax system as a result of the Organization for Economic Co-operation and Development (OECD) global minimum corporate tax initiative,” said Mr. Halkitis. “We have relaunched this study where we look at the tax system as a whole.

“I can say that I imagine they will look into the possibility [of income tax], but in terms of being on this government’s program, it is not on the table. The former Minnis administration had taken a similar stance and also pledged to conduct studies of the Bahamian tax system in light of the latest pressures from the OECD and the international community.

“I know there has been a long discussion about moving from a business license fee to a corporate income tax,” Halkitis added. “This is a frustrating sore point for companies with high revenue and low margins. I imagine they [researchers] go watch this.

“There is also a school of thought that there is no point in implementing a corporate income tax without personal income tax because all of a sudden no business is going to make any money. The last assessment of the entire Bahamian tax system was carried out by Deloitte & Touche in 2018.

“The short answer is that we are commissioning a study to look at the entire tax system,” Halkitis reiterated. “Income tax is not on the government’s agenda at the moment, and any changes – including the impact of a corporate income tax and the shift from business license fees to a corporate tax – of course we will be consulting widely so people have and understand what the impact of potential changes might be.

“At this early stage, we’re just looking at the whole system to see where we can make changes and be more efficient. The minister also again defended the government’s decision to eliminate as many VAT and zero rate exemptions as possible by reducing the overall tax rate to 10% and reverting to a general model.

Mr Halkitis argued that the administrative simplicity that would result would increase government revenue and crack down on fraud and waste, referring to a study – the results of which were previously disclosed by Tribune Business – showing that compliance (s) Collections had fallen from the mid-90s. percent to about 83 percent after the introduction of the exemptions.

Stating that the best way to minimize the impact of VAT on low-income families was to resort to direct financial assistance rather than exemptions, he added that these tax breaks also benefit Bahamians and more residents. rich who can afford to pay.

“The biggest buyers of bread are fast food restaurants. When you give an exemption to that, you not only give it to low-income people, but you give it to those businesses, ”he explained.

“We receive a study showing that without the exemptions the efficiency of the tax was in the range of 90%, and when the exemptions came in for whatever reason the efficiency dropped to 83%.”

Mr Halkitis said upcoming changes to the VAT law would also reintroduce “zero rating” on financial services provided by Bahamian institutions to international clients, thereby restoring their export status which was withdrawn from them in 2019. .

The minister also vowed to “stick with what works” when Michael Cunningham, chairman of the government-sponsored venture capital fund, asked him if the new administration would continue to provide a guarantee – like his predecessor the had done – for 75% of funds. up to a cap of $ 500,000 which has been extended to small and medium-sized businesses by financial institutions.

“We understand that even with the government guarantee in place, it has been difficult to find financial institutions that lend money against the guarantee,” Halkitis said. “We have to look at exactly what the problem is and fix it. “

Mr Halkitis said the government will also ensure that agencies such as the venture capital fund, the Small Business Development Center (SBDC) and the Bahamas Development Bank (BDB) “all work in tandem” to support small businesses. companies “and do not work through purposes”.


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