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The idea of directly taxing foreign financial services companies plying their trade and earning profits from The Bahamas may be gaining some traction in the industry, with an expert calling for a serious investigation into the option.
Adrian Crosbie-Jones, managing director of the Private Trust Corporation Limited (PTC), raised the corporate tax matter before attendees of the Nassau Conference on Wednesday. Crosbie-Jones said that foreign financial institutions are already taxed on their Bahamian profits, at rates in the 25 to 35 percent range.
"The only problem is that tax is not paid here," Crosbie-Jones said. "The tax is paid somewhere else. So the Swiss get the benefit of the profits generated in The Bahamas that are ultimately repatriated back to Switzerland and as a result the Swiss taxpayer has a reduced tax to pay because of the endeavors of Bahamians.
"We've got to start looking at perhaps ways where The Bahamas can benefit and participate to some extent in part of that tax."
The net effect on taxes foreign corporations pay would have to be neutral, at least, Crosbie-Jones told Guardian Business yesterday. If implemented properly he said such institutions could find they actually improve their profitability, while the country benefits from increased tax revenue receipts.
Though it may seem counterintuitive that such businesses could potentially earn greater profits under such a corporate tax system, Crosbie-Jones explained that the way Bahamian business license fees are handled creates the opportunity. Although the business license is now a tax, it is calculated based on turnover and taken out before net profits are deduced.
For illustration, if a company made $100 in gross profit and had a $5 charge for business licence fees as its only expense, it would book $95 in net profit. Whenever those funds are ultimately repatriated and taxed, it may pay 30 percent or $28.50 to some other country. Earnings after taxes would come in at $66.50 in this scenario, The Bahamas taking home $5. If there was no business licence tax but The Bahamas took 10 percent of net income and the foreign company 20 percent, the company's earnings after taxes move up to $70, The Bahamas' take improves to $10, and the foreign state gets $20.
The example is oversimplified, but the underlying point stands - more government revenue and possibly greater profits for institutions through sharing the tax on net profit. The numbers are small for illustration purposes -- foreign financial institutions may together book hundreds of millions in profits any given year.
Other jurisdictions already have such practices in place, according to Crosbie-Jones, who referenced financial centers like Jersey and the Isle of Man as examples. He said they use a zero/ten percent structure where foreign companies in the financial services industry pay 10 percent and local companies pay 0 percent. If implemented locally, such a regime would also need to exclude international business companies (IBCs) operating out of The Bahamas. Taxing them could have a number of other negative implications for the industry, not least of them being a loss of competitive position and potentially the loss of the IBC business to other players.
The jurisdiction may even benefit from others recognizing that the business licence is in fact a tax, according to Crosbie-Jones.
"You have a form of corporate tax--you have business license," he said. "If you were to call it corporate tax, which is in reality what it is, perhaps the whole world would perceive you in a different way."
The introduction of a corporate tax regime deserves serious investigation, according to Crosbie-Jones. It would require thorough research, and ultimately the implementation of a network of double-taxation treaties to ensure that companies would not end up paying more than they would under the current regime.
The PTC managing director also said the jurisdiction may actually be more vulnerable by not having such a tax in place. With global regulatory trends eroding privacy as a reason to use this jurisdiction for business, factors like reduced after-tax profits could cause companies to move to jurisdictions where their net take-home was higher. It is a tide that The Bahamas may not be able to stand against, he cautioned, potentially threatening the entire industry. Crosbie-Jones urged stress testing of how that and other developments could impact the industry as a whole.
Without a complete study presented to the government illustrating the benefits and measures for a successful implementation, Crosbie-Jones doubted that such talk would amount to anything more than talk. He suggested that the intellectual and research resources of an institution like The College of The Bahamas could be harnessed to do the necessary ground work.
For all the challenges involved, however, the PTC managing director is convinced that what the government is earning from the industry is 'really nothing compared to what it could be making'.
"Another $100 million to government coffers could be quite dramatic," he said.
FOUR Bahamian businesses - a restaurant and three luxury retailers recently came up winners in the MasterCard-Ministry of Tourism 'Find Your Way' initiative, walking away with an early Christmas present of cash from the international credit and debit card company for being number one in the increase of MasterCard sales volume for the month.
The most recent winners were the Kafe Kalik restaurant at Lynden Pindling International Airport, Carlo Milano and Effy Jewellers of Bay Street, and A la Plage, Marina Village, Paradise Island. Each received international recognition and a cheque for $1,000, rewarding them for their performance.
"The outstanding performance of our winning merchant ...
Insurers in the Caribbean could face as much as $1.1 billion in claims, according to an international catastrophe risk management company, and The Bahamas will account for nearly 60 percent of those losses.
The Boston-based company, AIR Worldwide, said between $300 million and $700 million in insured losses have been estimated for The Bahamas, while the Caribbean region is estimated to be between $500 million and $1.1 billion.
"This estimate includes wind and precipitation-induced flood damage to insured onshore residential, commercial and industrial properties [and their contents], automobiles, and business interruption losses in The Bahamas," the company said.
Hurricane Irene left The Bahamas after weaving a path of more than 500 miles through the entire length of the archipelago, with significant wind and flood damage to Abaco, Cat Island and Eleuthera.
According to AIR, The Bahamas' move to adopt stringent and highly enforced building codes may have played a part in limiting severe structural damage.
Most homes in The Bahamas are built with concrete and are single-story structures.
"At category 3 wind speeds, non-engineered structures can experience significant damage to the building envelope and the openings and can sustain structural damage if not properly anchored," explained Scott Stransky, a scientist at AIR Worldwide.
"Engineered structures can also sustain significant damage to cladding and openings, if not properly protected. Additionally, category 3 winds are expected to cause widespread damage to signage, trees, and electricity poles. Business interruption losses may also be significant from both direct physical damage to hotels and resorts, as well as damage to supporting utilities."
Hotels in The Bahamas have reported only cosmetic damage to their properties, with the country open for business following the passage of Hurricane Irene.
Minister of Tourism and Aviation, Vincent Vanderpool-Wallace, said all 28 government owned and operated airports, including the 16 international airports, are open and operating.
"Most resorts suffered only minor cosmetic damage but some of the smaller ones will remain closed for the near term," he said in a statement. "All main arteries to and from the airports are cleared so we declared ourselves "open for business" as of midday [Saturday]."
AIR Worldwide provides risk modeling software and consulting services for natural catastrophes and terrorism in more than 50 countries.
Even before the hurricane, head of Summit Insurance, Timothy Ingraham, said many businesses were insured for any damages caused by the hurricane.
"Businesses in recent times will look to see where they can save money," he told Guardian Business earlier. "Most of them will try to continue it because they understand the value of it and in recent times there have been break ins and we saw more fires earlier in the year, so that got more business people thinking about insurance.
"[Much of the recent policy business] would have come from individual home owners."
The planned Small Business Council will create various "taskforces" to assess how best to implement recommendations to enhance Bahamian small and medium-sized businesses that were contained in a 2007 Inter-American Development Bank (IDB) report, which estimated that despite containing 91 per cent of all businesses, this sector produced just 5.3 per cent of national gross domestic product (GDP).
Khaalis Rolle, the Bahamas Chamber of Commerce's president and co-chair for the Council, said last week that the IDB report, which was never formally published by the Government or IDB, would provide a "road map" for the body's work going forward.
Bahamian small and medium-sized businesses are failing at the rate of five per week, a leading consultant to the sector estimates in today's Tribune Business, arguing that the sector's contribution to the overall economy has shrunk by two percentage points over the past three years to just 3 per cent.
Mark A. Turnquest, of Mark A. Turnquest Consulting, writes on Page 3B that Bahamian small and medium-sized companies (SMEs) are at a "crossroads", with their contribution to overall Bahamian gross domestic product (GDP) having fallen from 5 per cent in 2007.
Also calling for a plan to encourage 80,000 Bahamians to return to the Family Islands, enticed by successful business developme ...
By NEIL HARTNELL
Tribune Business Editor
With major Freeport businesses and wholesalers having suffered year-over-year top-line sales reductions of between 30-60 per cent for January, a leading attorney told Tribune Business that central government pressure meant that "the rule of law and governance under the Hawksbill Creek Agreement has nearly complete collapsed".
Fred Smith QC, the Callenders & Co attorney and partner, warned that various government initiatives, such as Customs' demand for a National Insurance Board (NIB) Letter of Good Standing before bonded letters were renewed, were in danger of "throwing the baby out with the bath water" and "could easily k ...
By ALISON LOWE
Businessmen yesterday expressed some optimism that economic conditions and the business environment in the Bahamas will improve in 2011, but recovery tempered by a variety of factors - rising oil prices, government intervention, Bahamian consumer debt levels and the effectiveness of recent economic stimuli in the US.
President of the Bahamas Chamber of Commerce, Khaalis Rolle, said he was "cautiously optimistic" for Bahamian economic prospects next year if conditions improve in the US, but with several caveats.
"I am beginning to see some levelling off, but 2011 is going to be all about recovery. To the extent that the Governme ...
By NEIL HARTNELL
Tribune Business Editor
Bahamian companies are collectively losing "millions of dollars" per year through inflated transportation costs they do not have to pay, a Bahamas-based express cargo and courier provider told Tribune Business yesterday, something that also results in them paying more import duties/Stamp Tax to Customs than they need to.
Acknowledging that this was "definitely" increasing the cost of living in the Bahamas, Henry Johns, a 20-year transportation industry veteran who is the sales and operations manager for New Level Logistics, said Bahamian companies were incurring losses through not having their own discount freight programme in the US.
The Coconut Grove Business League (CGBL) could be heading back to court within the next month, this time to the Privy Council.
Ethric Bowe, spokesperson for CGBL, confirmed to Guardian Business that the group has instructed its lawyer to take the matter to the Privy Council, as businesses have yet to recover as a result of the road changes...