There is nothing ‘zero tax’ about Bermuda
Readers, take a look at the table accompanying this article. Have I missed or duplicated anything?
Reviewing the Tax Reform Commission report, all 76 pages, requires more study time than publishing deadlines permitted. I encourage you all to have a read for yourselves!
Certainly, it is a multitude of taxes for a country consistently labelled as a zero “tax haven.” Little does anyone realise how incorrect this misnomer is!
Oh, and to top off all these tax, tariff, fees, etc increases:
• Health insurance rates set to, or have already, increased upwards of 18 per cent for the year.
• Home Mortgage interest rate increases recently announced by local banks.
Taxes, the effect of direct and indirect taxation.
Government estimates $147 million generated in increased tax collections over next three years, per the Tax Reform Commission Report.
How will said tax increases be utilised?
• Reduce annual budget deficit?
• Government debt principal reduction — wouldn't that be wonderful?
• Upgrading capital transportation and other infrastructures?
• Eaten by inflation?
• Increasing the sinking fund reserve?
Here's a better question. With our current uncollected government tax liabilities now standing at $100 million plus and increasing, what are the chances that these new, or increased, taxes ($147 million) will be rationalised?
Your guess is as good as mine.
I'm particularly interested in two items:
1. Under the “new” old age contributory pension progressive changes, will the contributor at retirement receive the same government pension amount regardless of the size of their work history contribution, or will those who pay in more, receive more?
If this is how the new legislation is intended to work, is it fair and equitable, or aren't we just looking at another tax?
2. How will the “new” notional (really a dividend) tax be assessed against those high-earning professionals who earn a salary, but then receive additional distributions, not subject to payroll tax?
Bermuda employment statistics list an estimated 19 per cent of working population individuals in the senior management and professional categories, assuming earnings in excess of $96,000 per year. Are IB professionals included in this calculation?
But, are these really distributions? What happens if these professionals are already existing, or become, shareholders in their corporate entities? Wouldn't this notional tax actually legally be defined as a real dividend, not a deemed salary distribution?
And, if that is the case currently, Bermuda shareholders of local incorporated company shares are not taxed on dividends paid. Will this reclassification change the entire concept of the notional salary tax? And if it does, will it mean that all local owners of incorporated companies shares, both publicly-traded and private companies, will be subject to double taxation: a dividend and a salary tax?
Could such a revaluation conflict with two opposing tax positions: zero dividend tax for international business, but a serious dividend tax on all local incorporated entities?
Just an interested observer's curious investing question.
Taxation, both increases and decreases, has a direct and indirect effect on an economy.
Increased taxation, both new taxes and current tax increases, reduce the direct net income received by ordinary Bermuda resident households while indirect tax is passed through to them affecting their purchasing decisions for food, clothing, retail products, utilities, health needs, services, and entertainment. Household faced with shrinking purchasing power will instinctively cut back consumption, trim other costs, or go without.
Renters, both commercial and single tenant-type homeowners, will raise leases.
Exempt companies are always cited as getting a “free ride” with their legislated corporate zero tax. However, they too will experience higher costs across the board for personnel, benefits, commercial space, administration, et al. Public companies have an overriding responsibility to their shareholders and investors. They will never hesitate to trim expenses.
Increasing taxes is never an economic accelerator, history tells us that time and time again. Tax costs are always passed on, because no one is going to absorb (immediately, or indefinitely) arbitrary tax expenses by accepting smaller profits or no profit at all. General Motors recent redundancies prove that.
Tax cuts on the other hand increase household demand by increasing workers' take-home pay, boost businesses demand by increasing their after-tax cashflow, which can be used to pay dividends and expand activity, and by making hiring and investing more attractive.
Can our community stand the pain of these tax increases?
The supposedly well-heeled will seek alternative methods and jurisdictions to generate income, completely nullifying their local tax contributions. Those who do not have such choices, Bermuda's middle class, will have to tighten their belts further while limiting their consumption again, to perhaps nothing but the necessitates.
Tell me, then. How does such an initiative help rejuvenate an economy?
Meanwhile, expenses continue with a current deficit budget, and another deficit projected for next fiscal year, credit line and higher debt interest increases, financial assistance levels rising, new authority administration costs, and continued capital infrastructure assets/services breakdown.
Shouldn't government be focusing on revenue generation through every means possible?
Sources and references
• Bermuda Department of Statistics. Bermuda Job Market Employment Brief 2018: https://tinyurl.com/y752hlmh
• Bermuda Tax Reform Commission. https://tinyurl.com/y8mqohdd
• US Tax Policy Centre. https://tinyurl.com/y87x2dch
•Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. All proceeds earned from this column go to The Reading Clinic. Contact: firstname.lastname@example.org