Bank chief challenges PM over $80m ‘loss of revenue’

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• Trade license change increased sector fees

• Fidelity chief still questions EU compliance

• Press “standard diamond” on “game rules”

By NEIL HARTNELL

Editor-in-chief of the Tribune

nhartnell@tribunemedia.net

A Bahamian commercial bank chief yesterday challenged the Prime Minister’s claim that the government lost $80 million in revenue due to the sector’s tax structure being changed in 2018 to meet European Union requirements (EU).

Gowon Bowe, chief executive of Fidelity Bank (Bahamas), told Tribune Business that Philip Davis QC appeared to have been “incorrectly informed” of the revenue impact of switching to the current fee-based system, as the financial statements of his institution show he has paid more for the government every year since the change happened.

The Prime Minister, in kicking off yesterday’s budget debate, sought reassurance that returning to the old business license right would not jeopardize previous commitments to the EU, but Mr Bowe still has expressed concern that this would give the impression that the Bahamas are no longer playing “the rules of the game”.

He warned that the country could suffer serious reputational damage if it is seen as no longer meeting its previous commitments, and warned that the advice provided to Mr. Davis – that the Bahamas can proceed with the change of tax regime while by remaining in line with their promise to end so called “ring fencing” – is “certainly not consistent with the analysis carried out” before the 2018 reforms.

The current Bahamian financial services sector pricing system, which applies to both domestic commercial banks and institutions operating in the “offshore” sector, was introduced in response to EU requests that the country eliminates preferential tax relief targeted at the latter segment. The same incentives could not be accessed by commercial banks providing services to the national economy, leading to what the EU and its 27 members consider “closure”.

Prior to the 2018 reforms, commercial banks based in the Bahamas paid the government an annual business license fee of 3% based on revenue. The 2022-2023 Budget wants to return to this system, although the rate will be slightly lower and structured in such a way that it is based on the type of offer of financial service providers.

Mr Davis said the return to a business license fee structure was necessary because the government had failed to offset or compensate for the $80 million revenue loss resulting from the fee change (see the other article on page 1B) , but Mr Bowe said revenue to the Treasury had risen – not fallen – as a result. He added that instead of making a payment to the Department of Inland Revenue, the funds are collected by the Central Bank.

Suggesting that it would be useful for the government to publish the advice received, the head of Fidelity told this newspaper: “In matters that require full collaboration and support, storytelling and communication are insufficient. There have been several statements in which I would say that the Department of Finance did not properly inform its Minister of Finance [Mr Davis].

“One of the statements was that regime change has led to a decline in government revenue. I can tell you that as a listed company and my financial statements are available online, the new regime as it has been designed has been calibrated by the Central Bank in such a way that national banks and institutions will not expected no change in fees.

“The fee has changed from a business license to a payment to the Central Bank. The change was, instead of being paid to the Department of Inland Revenue, it was paid to the Central Bank. A mechanism has been put in place for the Central Bank to remit the fees collected to the government,” Mr Bowe continued.

“It was not a business license fee, but the Treasury certainly did not receive less funds from the banks under the regime change and, in fact, there was an increase. certainly had no drop in fees paid. There was no loss of revenue. There needs to be some degree of clarity because it’s dishonest to say there has been a reduction in revenue. It just been redirected and paid to the government.

The financial statements of Fidelity Bank (Bahamas) support Mr Bowe, as annual payments of “banking and business license” fees have increased each year since the change was unveiled.

The BISX-listed institution paid $2.867 million in such fees for 2017, the last full year the 3% trading license regime was in effect. Following the change, Fidelity Bank (Bahamas) paid $2.902 million of these fees in 2018; $3.088 million in 2019; $3.705 million for 2020; and $3.756 million in 2021.

“I hope to see the legal and technical advice provided. There are some issues that I think are important not to be vaguely addressed,” Mr. Bowe said. He pointed out that the return to commercial license fees for commercial banks could reinstate the same “closure” that the Bahamas has promised the EU to eliminate as domestic and “offshore” institutions will once again be subject to different tax regimes.

The head of Fidelity Bank (Bahamas) said that in addition to having a full physical presence, and “mind and management”, in the Bahamas, many private wealth management providers also have clients in this countries that are secondary owners and/or permanent residents. These providers, in common with commercial banks, provide services to residents of The Bahamas and earn income here, but must be taxed differently.

Mr Bowe added that the commitments of the former Minnis administration had gone beyond eliminating ‘ring fencing’ to promising that there would be ‘no smoke and mirrors’ to hide such practices. . Suggesting that the advice from the Davis administration appears to contrast with what was provided at the time, he added that both governments were “guilty” of not consulting with the financial services industry in a timely manner.

“When we as a small island state make commitments, regardless of administration, it is important that we are very comprehensive when we change those commitments and it is not enough to say that technical advice has been sought and that we were ultimately found to be compliant,” Mr Bowe told Tribune Business.

He added that the Bahamas must both justify and explain the change to the EU and its 27 member states, including why the nation is still meeting its “closure” obligations. “I’m not saying we should capitulate to the EU, but if we make a commitment we need to be clear, thorough and comprehensive in how we make changes to those commitments and stay compliant,” the chief said. of Fidelity.

“As a country, we have to be careful when we change positions. I’m not saying don’t, but we have to – if we’re looking to change – make sure we always play by the rules of the game. I take the Prime Minister at his word that the technical advice and liaison has been done , but this advice should be shared with the industry. We must demonstrate that we are not just the gold standard but the diamond standard” and beyond reproach when we change previous commitments.

“Based on the attendance I’ve been involved in, on the face of it, this doesn’t appear to be in line with what we’ve committed to in the past,” Mr Bowe said of the fee review. commercial license for commercial banks.

The Business Licensing Act reforms stipulate that all financial services entities domiciled in the Bahamas will pay a “tax” of $2,500.

On top of that, they will pay an additional tax depending on their license and the nature of their business activity. So-called “authorized agents” operating under the Banks and Trust Companies Regulation Act 2020 will pay an annual license fee of $10,000, while “other public banks and trust companies” will pay $5,000. Authorized resellers must part with an amount equal to 2.25% “of total income net of interest charges”.

Meanwhile, money lenders; money transfer businesses; insurance companies and fund administrators, investment managers and advisers working with Bahamian dollar assets are all required to pay a business license fee of 2.25% of turnover.

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