EU and OECD: Wrong Impetus for Reform

  • Financial services under constant pressure

  • Agility of Government questioned

  • Long term strategy required for Financial Services

  • Domestic-driven comprehensive tax reform long overdue

  • Proper consultation and details required

The Bahamas' financial services industry has been under intense pressure over the last year. During this period, we have seen The Bahamas placed on adverse listings or blacklists by the European Union, Organization for Economic Cooperation and Development (OECD), Financial Action Task Force (FATF), United Kingdom, United States of America and The Netherlands.

Observers of the global landscape for financial services are aware that the second pillar of the Bahamian economy has been under assault for over two decades with the goal posts for compliance being moved constantly and continuously. The end goal of the implementation of new standards and placement of additional hurdles for International Financial Centres like The Bahamas seems apparent to industry professionals.

This could not have been more obvious than the Netherlands' recent inclusion of The Bahamas on a blacklist of tax havens with no corporate tax or corporate tax rates lower than 9%. This took place while the Government was working around the clock to implement sweeping changes to our tax system in order to meet an EU imposed deadline. The Netherlands Government in this instance, indicated that the list was subject to consultation from 25 September to 22 October 2018. It is concerning that adverse listings of this nature and other blacklisting initiatives often catch the Government by surprise. This raises questions about our level of engagement and the agility of relevant government ministries or agencies in keeping up with global trends and initiatives.

It is time for the Government to wake up to the reality that the pressures will not cease, and the goal posts will continue to shift. A reactive approach to new standards set by international bodies and other jurisdictions is myopic and demonstrates a lack of a long term plan or vision for the financial services industry and the Bahamian economy as a whole.

Long overdue reforms that are required to usher The Bahamas into the 21st century cannot be ignored or delayed until external pressures force the Government into these initiatives. The recent press release on financial sector reform is a prime example of this phenomenon. We have once again kicked the proverbial can of comprehensive tax reform down the road thereby ignoring the need to move from the current regressive tax system to a more progressive and equitable one. The current system places undue and unfair burden on the working and middle class as well as those who can least afford it.

While some clarity has been provided on the basis for the calculation of business license tax with a link to positively rated taxable supplies, it does not address the main concern of the business community that the tax is imposed on turnover rather than profits. This is especially relevant for high turnover and low margin businesses.

It is imperative that the actual details underlying the proposed changes to our tax regime are provided to stakeholders and the public for scrutiny and feedback. We urge the Government not to shove this down the throats of domestic entities in the same manner as the significant increase in the VAT rate. There must be transparency and disclosure in relation to the criteria for determining the proposed new taxes and/or fees.

We welcome any initiative aimed at reducing the cost of doing business and improving the ease of doing business in The Bahamas. It is our hope that the Government's agenda and priorities will someday not be dictated or determined by external factors but rather a coherent vision which has at its core the best interest of the Bahamian people.

Arinthia S. Komolafe

Deputy Leader, Democratic National Alliance