Tax Reform Commission calls for CIT to slash national debt
The Tax Reform Commission has called on the island to use the corporate income tax to halve Bermuda’s national debt within ten years.
The commission, empanelled in 2023, was tasked with crafting policy recommendations to reshape the island’s tax system in light of anticipated revenue from the CIT, which was introduced in January.
Its recently released report suggested the creation of a stability fund, which would use revenue from the CIT to pay down debt while supporting consistent funding of the Budget.
“The stability fund will help to give the Government enhanced fiscal flexibility to navigate economic downturns, will be a valuable financial planning and risk management tool, and increase confidence of credit rating agencies and business investors in Bermuda,” the report said.
The commission also recommended a plan to reduce Bermuda’s $3.2 billion debt by 50 per cent within ten years, stating that each $100 million paid in debt reduction would save between $4 million and $6 million in interest payments.
Other recommendations included payroll tax changes to increase take-home pay for lower and middle-income earners, health insurance support for vulnerable groups, measures to lower utility bills, and capping the top rate of employer payroll tax to encourage job creation.
The report suggested a “waterfall” model for potential revenue because of the “inherent uncertainty” about CIT revenue, with the stability fund, contributions to the sinking fund and senior healthcare support receiving the highest priority.
The commission further recommended that another group be empanelled to review the outcome of proposals in the report and make future suggestions based on data from CIT filings and any changes to rules related to global minimum tax.
“The [Organisation of Economic Co-operation and Development]’s rules and guidance continue to evolve, with the United States actively influencing directions that protect US entities from full OECD impacts,” the report said.
“These developments create ongoing uncertainty, requiring Bermuda to remain adaptable and vigilant in monitoring future changes.
“The jurisdiction must avoid complacency while leveraging the corporate income tax implementation as an opportunity for comprehensive reform.”
David Burt, the Premier and Minister of Finance, said that the Government will launch a consultation period to consider the recommendations.
“We will listen carefully to the views of stakeholders across all sectors of our community to ensure that any reforms deliver meaningful economic and social benefits, reduce the cost of living and doing business, and position Bermuda for long-term stability and growth,” Mr Burt said.
“We are committed to working collaboratively and transparently as we move from recommendations to implementation.”
• Creation of a stability fund to use corporate income tax revenues to pay down debt and support consistent funding of government budgets
• Plan to reduce Bermuda’s $3.2 billion national debt by at least half within ten years
• Changes in employee payroll tax rates to increase take-home pay for lower and middle-income earners
• Health insurance support for vulnerable groups, including seniors, the underinsured and those on low incomes, to promote healthcare equity and lower the cost of Bermuda’s healthcare system
• Provisions to help reduce utility bills, including the elimination of duties and taxes on bulk electricity generation, and utility infrastructure tax credits to support efficient provision of services essential to the Bermuda economy
• Capping the top rate of employer payroll tax at 7 per cent, with a suggested further reduction to 5 per cent, to lower the cost of employment and encourage job creation
• Refund employers the equivalent of 25 per cent of the employer’s share of the Standard Premium Rate portion of employees’ health insurance premiums to reduce the cost of employment and encourage hiring
• Elimination of the foreign currency purchase tax, which increases the cost of imported goods and overseas education, and is a tax disproportionately paid by those who earn Bermuda dollars — predominantly Bermudians and local businesses
• Amendment of customs duties to promote fairness and public health goals
• Community development tax credit to incentivise charitable giving
• Substance-based tax credit initially targeting the insurance industry and based on local employment, hiring and training of Bermudians, and on-island spending
• Programmes based on tax credits to incentivise housing development and innovation
He thanked the commission for its efforts, stating: “The time, expertise and public engagement invested in producing this report are deeply appreciated, and reflect the commission’s commitment to serving the people of Bermuda.
“Independent analysis such as this plays a vital role in shaping our fiscal future, providing a foundation for informed and balanced decision-making.”
Darren Johnston, commission chair, said: “We listened carefully. We heard about the pressures of families struggling with the high cost of living, and about how businesses are grappling with tough decisions on hiring, expansion and retaining top talent in Bermuda.
“We heard a wide range of ideas on how CIT revenues should be used — from reducing debt and strengthening pension funds to lowering other taxes and supporting growth. These perspectives directly shaped our thinking.”
Mr Johnston said the commissioners believed the recommendations struck the right balance between financial stability and reducing the financial burden on the public.
“The commissioners are optimistic that, should the Government choose to implement these changes, the combined positive impact would be felt community-wide,” he said.
“The benefits will compound over time, helping to build a more equitable, prosperous and sustainable Bermuda.”
A government spokesman said the report will be posted at forum.gov.bm, where the members of the public are encouraged to offer their views.
• To read the report of the Tax Reform Commission, see Related Media
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