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Tax collection, uncertain revenues among issues facing Government

John Wight, independent senator and retired insurance executive (Photograph by Akil Simmons)

The implementation of a new tax collection system and the unpredictability of revenues are two of the issues the Government would face should it move towards the imposition of a corporate income tax, a leading businessman has said.

John Wight is the former group chief executive of BF&M Ltd. He also sits as an independent senator in the Upper House.

He said: “From a government perspective, estimates of future revenues from the imposition of a corporate income tax would be less predictable. This is because corporate taxes would be determined by companies’ profitability, not by payroll tax on employees’ salaries.

“If reinsurers for example have a strong earnings year, tax collection may be strong. If due to weak capital markets performance or poor underwriting, earnings are low, then the amount collectible in respect of that year may similarly be low.

“The complexity and uncertainty of the Government's budgeting process may thus be very different from that currently, as a result of the unpredictability of revenues for any given year.

“In addition, a tax collection and administration system would need to effectively and efficiently be implemented prior to 2025, no small task for an island our size which doesn't levy corporate taxes.”

Mr Wight added: “How the Government and impacted businesses would operationalise this new tax regime will require much careful thought and planning.

“It's a changing world, and I'm confident that Bermuda will continue to succeed as a premier business jurisdiction with the collaborative process under way between Government and our major stakeholders resulting in a positive outcome and future for Bermuda.”

He said: “Bermuda has worked hard to be fully committed as it is today by the EU, as a fully co-operative tax jurisdiction. Bermuda is committed to global tax compliance and transparency which makes our island the highly respected jurisdiction it is today.

“We therefore want Bermuda to continue as a leading and respected jurisdiction and the Government has been working for many months with business leaders in Bermuda to ensure that all elements of this new global tax regime issue are fully understood.

“Discussion between Government and Bermuda’s major stakeholders, particularly international business, on the adoption of a corporate income tax in Bermuda will positively result in the best outcome for Bermuda and the businesses that support it.”

David Burt, the Premier and Minister of Finance, announced this month that Bermuda was considering a corporate income tax in what would be the biggest shake-up of the island’s tax system since the 1800s.

The shift comes as the result of work by the Organisation for Economic Co-operation and Development’s Inclusive Framework, whose 135 members in 2021 agreed on a two-pillar solution to reform international tax rules to ensure that large multinational enterprise groups pay a minimum level of corporate income tax.

The rules are designed to impose a minimum effective tax rate of 15 per cent on the corporate profits, in each jurisdiction in which they operate, that will apply to MNEs with more than €750 million in total global revenues in at least two of the previous four accounting periods.

The Government expects that the proposed Bermuda corporate income tax legislation will be effective for tax years beginning on or after January 1, 2025.

Mr Burt said that estimates are that it would apply to about 2,000 of the island’s 16,000 international companies.

The proposed tax would be taken into account in calculating the effective tax rate of Bermuda businesses under the OECD’s global minimum tax rules.

The Government said the taxes paid under the proposed Bermuda corporate income tax regime would be those which would be payable to other jurisdictions under the global minimum tax framework.

It added that any new corporate income tax adopted would also include certain tax credits which support Bermuda’s economic goals and maintains global attractiveness.

A consultation document suggests that Bermuda’s corporate income tax rate for the targeted multinational companies would likely be somewhere between 9 per cent and 15 per cent.

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Published August 21, 2023 at 7:59 am (Updated August 21, 2023 at 7:21 am)

Tax collection, uncertain revenues among issues facing Government

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