Madam Speaker,
Today, we debate the Domestic Minimum Top-up Tax Bill, 2024, which is projected to generate revenues of up to $140 million to support our transformative, people-focused agenda.
This Top-up Tax, which is the first-ever corporate income tax introduced in The Bahamas, will raise revenues without negatively impacting Bahamian businesses in this country.
For those listening intently who are not sure what this new tax is all about, the first thing you should know is the Domestic Minimum Top-up Tax applies only to multinational corporations operating in The Bahamas that earn over 750 Million Euros per year. If you do not own a multinational entity making 750 million Euros per year or more, which is the equivalent of $800 million per year or more, this tax does not apply to you.
I wanted to make that clear to those who may have heard that the government was implementing a new tax but did not know who would be impacted.
As you know, Madam Speaker, this administration has pledged not to introduce any major new taxes to place a further burden on the Bahamian people.
I wanted to start this debate off by providing clarity on the purpose of this Bill because there are those who would use the mere mention of the word “tax” to sow seeds of confusion and spread fake news.
The fact is that the vast majority of Bahamian people have experienced lower taxes in the past three years.
We lowered customs duties on a wide range of healthy and nutritious dietary staples, construction supplies, and a number of essential goods.
We lowered VAT from 12% to 10% – a 20% reduction. That is in contrast to the 60% increase from 7.5% to 12% under the FNM.
And we increased the threshold for paying real property taxes from $250,000 to $300,000.
Many property owners whose properties were valued between $250,000 to $300,000 benefitted from this move and now pay $0 in real property taxes each year.
The common thread connecting all of these reductions is that they benefit a wide cross-section of Bahamians, particularly lower-income and middle-income Bahamian families.
Just as meaningful as our tax reductions are the ways that we’ve chosen to increase revenues.
We have targeted strategic areas for increases and we enhanced enforcement.
For example, owners of yachts are paying a bit more in fees to cruise around in our beautiful waters.
And local businesses that were avoiding paying customs duties or real property taxes now have to pay up.
Our main method to generate increased revenues has been improved enforcement and collection.
Now, I know when we use the word “enforcement” there are some who try to portray it as a scary word.
But enforcement simply means that we’re ensuring everyone follows the law.
Most Bahamians don’t mind because they actually follow the law when it comes to taxes.
It is a fact that everyday people do not have the means to avoid paying taxes.
The single mother living over-the-hill doesn’t get to go to the grocery store and say, “I don’t think I’ll pay VAT today.”
The father who took his family on vacation to Miami doesn’t get to just skip paying customs duties.
He knows his bag will be searched as he passes through customs and he better not get caught falsifying the numbers.
So, who is exactly is it that is afraid when they hear the word enforcement? Who is it that has their paid mouthpieces going around attempting to spread misinformation about our enforcement activities?
The answer to that question can be seen in their actions.
Let’s look at Real Property Taxes, for example. About 70% of the hundreds of millions of dollars owed in real property taxes is owed by second homeowners.
These are non-Bahamians who often own a vacation home or winter home here in The Bahamas. For some, we function as their “home away from home” when they want to escape to paradise.
Others use their second homes as income generators, renting out their properties to locals and visitors alike.
Why is it that, for decades, we allowed many of these second homeowners to not pay their taxes?
I don’t know if it makes sense to y’all, but it doesn’t make sense to me.
There is a patent unfairness in enforcing tax policies on the poor and middle class but allowing the wealthy to pay when they feel like it.
From day one, we resolved to make it clear that no one is above the law and everyone must pay their fair share.
The people who are afraid of the word “enforcement” are people who want the status quo to remain in place.
I’m sure we all remember when the previous administration announced its intent to generate more revenue from real property taxes.
They were big and bold with their announcement.
Then, one single letter arrived from that gated community out west. The homeowners in that community said they would pack up their bags and leave if the government touched real property taxes.
The very next day, the Minnis administration, walked their announcement back with their tails between their legs.
Now, fast forward a few years to when this Administration announced enhanced real property tax enforcement measures, as well as a nationwide revaluation.
We faced the same kinds of threats.
But we did not back down.
That’s not our style. Not when we are creating a fairer system for everyone.
We implemented the changes like we said we would, and you know what? Those homeowners are still here today. They didn’t leave.
And the real estate market didn’t crash either. It is booming.
Most importantly, everyone now understands that they must pay their fair share.
The truth is, the average person doesn’t mind paying taxes as long as they feel empowered, the tax regime is fair, and there are clear results indicating where their tax dollars are going.
People want to see improvements in areas like education and national security. They want to see new programmes that help people like the National School Breakfast Programme.
They want to see improved fiscal responsibility like we’ve seen in the past three years when the debt-to-GDP ratio dropped from over 100% to 82%.
They want to see progress toward a balanced budget, which we are still on target to deliver after fixing the fiscal mess that the Minnis administration left behind.
People don’t mind paying taxes to an effective and responsible government.
Because everyone knows the government needs revenues to run. We just want our money managed properly.
Unfortunately, when this administration took office three years ago, the nation was struggling to climb out of an economic and fiscal crisis brought on by the FNM’s mismanagement.
Since then, we’ve made clear and substantial progress to improve our financial standing through enhanced efficiency and effective financial management, as well as through identifying new ways of increasing revenues.
We are fixing our predecessors’ mess while establishing a new standard for government efficiency and effectiveness.
The Bill before us today represents another avenue for generating significant revenues that will be realised without placing a burden on Bahamians.
The Domestic Minimum Top-Up Tax is, essentially, a corporate income tax, applied to multinational entities in The Bahamas with an annual turnover over 750 million Euros (800 million USD).
In introducing this tax on multinational entities, we are taking part in a major global change, as 140 other countries have signed up in agreement with the Organisation for Economic Co-operation and Development on a global minimum corporate tax.
The agreement calls for a 15% tax on the turnover of multinationals for the fiscal period beginning 1 January 2024 – although some companies may apply for an extension until 2025 if they are newly impacted by this tax.
The 15% is actually a reference to the total effective tax rate, which requires corporations that don’t currently have a total 15% tax rate to “top up” with this tax to meet the 15% mark.
The OECD has pushed for this global movement as a part of its efforts to prevent corporations from moving to low-tax jurisdictions while making most of their revenues elsewhere.
The OECD argues that this change will produce a more fair global tax regime, because it opens the door for hundreds of billions in revenues for jurisdictions in which these corporations are based.
Of course, there are some concerns about the fairness of these universal standards.
As this discussion evolves, The Bahamas is very present and active in shaping the dialogue.
We’ve already helped to ensure that the UN plays a bigger role in shaping global taxation and transparency efforts.
Our Attorney General, Hon. L. Ryan Pinder, sits on the UN Committee charged with ensuring the fair application of standards.
This underscores the importance of our international advocacy.
If we weren’t present to boldly state our perspectives on these issues, we would not have the opportunity to actively shape conversations today.
Our advocacy could not have come at a better time.
The Global Minimum Top-Up Tax is part of a wider slate of reforms, referred to as the Global Anti-Base Erosion Model Rules (or GLoBE rules), to prevent practices like profit shifting and end the perpetual “race to the bottom” to lower corporate tax rates in many jurisdictions, which ultimately benefits multinationals more than the countries they are based in.
This is the most comprehensive global undertaking of its kind ever attempted, and it is expected that more standards will be introduced. Thanks to the efforts of this administration, we will be present in the room when key decisions are being made and new standards are being crafted and debated.
In the meantime, we have made the decision to introduce the Domestic Minimum Top-Up Tax for several key reasons.
First of all, as a matter of fairness, given the high levels of revenue generated by these multinationals, it seems appropriate that the Bahamian people would benefit.
The $140 million in projected government revenues will go a long way toward further strengthening the government’s fiscal situation and funding key programmes to empower and support Bahamians.
In fact, if we refuse to implement a Domestic Minimum Top-Up Tax, the annual turnover of these multinational entities in The Bahamas would eventually be taxed by other Jurisdictions.
This would rob us of the opportunity for our people to benefit from the presence of these corporations.
This Bill ensures that we capture this important source of revenue.
We must also ensure that The Bahamas, as a leading financial services jurisdiction, remains fully compliant with global standards.
This is critical because investors want to do business in compliant jurisdictions.
Section 4(1) of the Bill outlines the main purpose of the Bill, which is to implement a domestic minimum top-up tax that meets the requirements of the GLoBE Model Rules.
Our approach is consistent with Pillar 2 of the Base Erosion and Profit Shifting 2.0, which calls for a 15% effective tax rate for multinationals with an annual turnover of over 750 million Euros/(800 million USD).
This Bill was developed to bring us into full compliance with this requirement.
We have demonstrated time and time again the seriousness with which we pursue compliance. It will never be said that The Bahamas does not make every effort possible to remain fully compliant.
Earlier this year, we were removed from the EU’s blacklist of non-cooperative tax havens after we corrected the mess left behind by the previous administration in rolling out a proper economic substance reporting portal and process that met international standards.
We must now be proactive in ensuring that we remain off of any additional blacklists.
Compliance is a key cornerstone of our financial services industry that we are keen to maintain.
Madam Speaker,
After a lengthy public consultation process, it is clear that industry observers support our approach and have agreed with our determination that this introduction of this tax will not have a negative impact on our financial services industry, especially given the fact that it is a uniform global standard.
We shall remain competitive.
Public consultation has been critical for us throughout this process. All stakeholders have been deeply involved in giving direct feedback, analysing the impact of the changes, and ensuring that we have a strong draft legislation.
We’ve consulted widely at every phase of development, including a formal period of public consultation during the months of August and September in which we were open to feedback from any member of the public with commentary or concerns.
We have communicated the upcoming changes well in advance with the expectation that it will give affected corporations a chance to plan accordingly.
We have made it clear what our intentions were in adhering to the OECD’s standards, and we have forecasted the target tax rate, which aligns with the global minimum.
We’ve also made it clear that there will be no further domestic income tax policy changes made that will have a foreseeable impact on affected corporations.
In communicating transparently, multinational corporations have been equipped with the information they need to facilitate a smooth transition.
For instance, Clauses 6 and 7 of the Bill outline reporting and payment requirements according to GLoBE model rules.
Clause 4 makes provisions for “safe harbours,” which allows entities to bypass certain compliance requirements to simplify tax reporting and administration.
And Clause 20 requires the keeping of records for five years or, if an amount is under dispute, for two years after the dispute has been resolved.
This process necessitates changes to company accounting and tax management processes that may require resource and manpower additions that corporations will need time to accommodate.
Being proactive in our approach has give them the time they need and will also give the government time to prepare for this major change.
This is a significant legislative and regulatory reform that will require unprecedented monitoring and tax administration capabilities.
There are a number of changes that must be made systemically. We don’t have a history of an income tax of this kind. It is a steep departure from the business licence fees we typically charge.
And it requires taking into account a wide array of information like specific expense types that we do not currently apply our tax administration and monitoring efforts toward.
Needless to say, significant capacity building is taking place within the government as we move forward with our agenda.
To facilitate the rollout of this change, Clause 8 of this Bill outlines the responsibilities of the Financial Secretary, who may also delegate responsibilities to the Controller of Inland Revenue, officers of the Department of Inland Revenue, or another authorised person.
The Financial Secretary may prescribe forms and procedures, make tax rules and guidelines, and make advanced tax rulings.
As indicated in Clause 14, the Financial Secretary will also have investigatory powers. For example, they can make notice in writing for any person to furnish information, documents, and other records for tax liability purposes and examine that information for investigative purposes. They can also ask for relevant persons to be examined under oath.
Under this Bill, people connected to the business must provide their assistance with any investigation and, where it appears information has been withheld, the Secretary can take possession of the relevant information.
Clause 15 allows for assessments of a person’s tax liability and any associated penalties or fines. Under clause 16, the Minister of Finance may also prescribe penalties for non-compliance and interest rates on outstanding monies owed.
Other highlights include deductions on the total amount owed based on local expenses like payroll to reduce the tax burden on entities with a substantial economic presence in The Bahamas.
Of relevance to affected companies is Clause 24, which makes provision for amendments to section 38(1) of the Business Licence Act, 2023 (No. 13 of 2023), in order to exempt corporations being taxed under this bill from paying business licence-related taxes to prevent double taxation.
Madam Speaker,
This Bill addresses our needs comprehensively as we take this major step forward.
I have to thank the teams at the Ministry of Finance, the Department of Inland Revenue, the Attorney General’s Office, the Ministry of Economic Affairs, and all others who played a role in getting this Bill before us today, including everyone who gave their feedback during the public consultation process.
This is the beginning of a new approach to revenue generation in The Bahamas.
We have successfully maintained our competitive advantages as a financial services jurisdiction while prioritising global compliance and bringing in significant revenues.
All interested parties who wanted to see what the final draft of our approach to the Domestic Minimum Top-up Tax would look like now have a clear and definitive answer.
It should be noted that this law applies to the entire Bahamas, including the city of Freeport, as noted by Clause 3.
That is the intention. And all relevant changes will be made to ensure that we live up to our obligations and bring about the changes that are necessary for progress.
Looking ahead, we are considering exempting certain structures, like investment funds and insurance companies, which may operate within a different business reality.
The business community can rest assured that we will continue to be 100% transparent and involve them every step of the way.
Madam Speaker,
As we debate this Bill, we must always keep our main goal in mind.
We are solely interested in moving this nation forward in the best interest of the Bahamian people.
Our tax regime, our spending priorities, and our developmental efforts must all be aligned with that goal.
And I believe this Bill will further enable us to achieve that goal.
On behalf of the people of Cat Island, Rum Cay, And San Salvador, I give my unbridled support to the Domestic Minimum Top-Up Tax Bill, 2024.