Bahamas tax shift threatens haven of secrecy
The secrecy enjoyed by offshore companies in the Bahamas could be jeopardized as the result of a new business- licensing tax law scheduled to take effect in this month.
The regulations, designed to levy a graduated fee on all businesses in the country, would also allow the Finance Ministry to examine the business records of offshore companies based here.
Banks, trust companies, accountants, and others acting on behalf of thousands of offshore companies feel such exposure violates the confidentiality formerly guaranteed by the Bahamas.
The tax proposal has been controversial from the start. The initial bill, put to Parliament more than a year ago, was scrapped after representatives of the private sector won their argument that it would seriously damage the country's position as a tax haven and offshore financial center.
One of the principal criticisms was the bill's failure to distinguish between domestic companies and those registered in the Bahamas for tax purposes and transacting all their business offshore.
The new measure now provides that a company designated as nonresident under the Exchange Control Regulations Act will be assessed a flat fee of $100 annually. Captive insurance companies, that is, those insuring the risks of the parent, will pay a quarterly fee of $25, and banks and trust companies, which are licensed and pay fees under the Banks and Trust Companies Regulation Act, will remain exempt.
A number of gray areas remain, however. Among them are the failure to clarify the status of nonresident trusts and nonresident partnerships, and the unrestricted authority granted Finance Ministry officers to inspect and remove business records and documents from private premises.
A proposal by the Bahamas Bar Association to have offshore companies exempted from inspection was rejected by the government.
The legislation also worried Bahamian businessmen who are concerned about the consequences of any new taxation on an economy already overburdened by an excessively high unemployment rate.
They point out that assessment of the licensing fee on the basis of gross profits and turnover is not a true reflection of business success, viability, and ability to pay.
Payment is scaled from a low of $1 to $8 for businesses with an annual turnover of $50,000 or less to $45,000 to $180,000 for businesses turning over $ 5 million or more.
Hoteliers, who are likely to be among the most heavily taxed, have already warned of disastrous consequences for the tourist industry unless they are given some relief.
Worse yet, private owners have been put at a competitive disadvantage with the six government-owned hotels, all of which are tax exempt.
"The trouble with the act is that it was conceived in good economic times but is being implemented during a period of recession," says Franklyn Wilson, one of the country's leading businessmen and a former government-party representative in Parliament.
Obviously sensitive to the criticism, Finance Minister Arthur Hanna has said the government is prepared to make changes in the law as the need arises.