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The Bahamas responds to OECD report on harmful tax competition
Since the report was issued, many jurisdictions have responded that the OECD clearly made generalizations without investigating each individual country's situation. In the case of The Bahamas, many have felt that the OECD clearly does not understand the economic structure of the Bahamas and how it works.
Julian Francis, governor of the Central Bank, indicated that the OECD report was high-handed and ill-informed and that some evidence indicates that the initiative was spearheaded by a few countries and that not all OECD countries are of the same view.
"When one looks at the purpose for which the report has been prepared and the conclusions it draws, it is obvious that they do not understand jurisdictions such as our own. To say that The Bahamas has contrived its fiscal regime simply to attract foreign investment and international banking is really not to understand the evolution of our economy and how it is structured today," said Francis.
Thus, the Bahamas has evolved having no income tax, no corporate tax and no capital gains tax. Francis explains that The Bahamas does have a tax, a consumption tax on goods and services. This tax amounts to about 20 percent of gross domestic product annually. Seventy percent of government revenue comes from customs, import and stamp duties. Property tax is minimal and some revenue is gained from departure fees.
Francis indicates that this 20 percent rate reflects the needs of the society and social structure and the preference of the Bahamian people. The Bahamas, he explained, is not in need of a higher tax rate, such as that of large industrial countries, because it has neither the infrastructure nor the volume of people to attend to.
Francis indicated that maintaining the 20 percent level would allow The Bahamas to balance its budget within two years.
As for the OECD's criticism about conducting business in a poorly regulated environment, Allen noted, "We operated a highly regularized environment. Our objective is to have a financial center of the highest integrity. As a properly supervised center we believe our regulations and our supervisory regime is equal to that of any of the industrial countries." He noted that the International Monetary Fund has looked at The Bahamas system and has indicated that the country runs a well-supervised center.
Allen indicates that The Bahamas will be sensitive to OECD's concerns but that the financial services sector is an important engine in the Bahamian economy and that the country intends to maintain a well supervised, efficient and properly regulated international financial services center.
The private sector agrees with the government. "The financial service industry here goes back to the 1940s and that is one of our strengths. We have been growing the financial services business for more than 60 years. It is not something that has been contrived to attract people; it is something of bedrock that has been fundamental to the development of The Bahamas," said Ian Fare, chairman of the Bahamas Financial Services Board and of MeesPierson (Bahamas) Ltd.
"The idea that the OECD can tell us how to arrange our own fiscal arrangements is offensive. However, a small country like ours, having to co-exist with the major countries around the world and having important relationships with them, cannot afford to ignore them because they really can have an important influence on the way we exist," said Francis.
The Bahamas will continue to regulate its environment and provide a legitimate center in which to conduct offshore business.
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Table of Contents The Bahamas: An established tourism and tax-free financial services center experiences a renaissance |
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In its recent report "Harmful Tax Competition - An Emerging Global Issue," the Organization for Economic Cooperation and Development severely criticized several low-tax jurisdictions, stating that poor regulatory environments, low levels of transparency, banking secrecy, minimum business presence requirements and low tax features promoted and facilitated laundering of money derived from corruption, drug trafficking or other criminal activities.
The Honorable William Allen, minister of finance, clearly explained to the OECD in his "Statement by The Bahamas to the OECD Forum on Harmful Tax Practices," that "The Bahamas has never had, throughout our entire history, a tax on income and capital and does not hold to the view that such taxes are inherently a natural component of an appropriate tax regime. The Bahamas is an international financial services center; it is not a tax haven developed to facilitate tax evasion for international purposes. The Bahamas has no interest in facilitating, aiding or abetting unlawful acts, nor will it be associated with rogue action of individual countries or groupings. The Bahamas position has been clearly stated: We have no desire for businesses seeking to hide or shelter money derived from corruption, drug trafficking or the proceeds of other criminal activities."