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Tax ‘status quo’ not an option

David Burt, the Premier, unveils the bipartisan Tax Reform Commission in February (File photograph)

Boosting Bermuda’s population must accompany proposed overhauls for its tax regime, according to a tax reform report tabled on Friday in the House.

The bipartisan Tax Reform Commission’s recommendations, built from 400 hours of research, was hailed by John Wight, the Bermuda Chamber of Commerce president, as “pivotal” for the government financial mission.

“The status quo for Bermuda’s tax model was not an option,” said Mr Wight, who spoke with The Royal Gazette ahead of his discussions with the chamber.

Mr Wight noted that “income on labour” had played too prominent a role in the island’s taxation.

Lessening the burden on lower earners while broadening the tax base was “surely a good thing” if the island was serious about boosting disposable income, he added.

The report, which took nine months to compile, pitches new taxes along with reforms to existing taxes. It aims to boost government revenues by $147 million over two to three years.

Mr Wight said that if the recommendations went ahead, “every business in Bermuda will be impacted, some more adversely than others”.

But he said Chamber members, especially in hospitality, would welcome the Commission’s “unequivocal” support for balancing immigration with taxes and growth.

Bermuda’s population drain and rising numbers of seniors meant that “tax reform to generate additional revenues and immigration reform go hand in hand”, he said.

While the report did not include government spending, Mr Wight said local businesses needed to see “the shared commitment extended to Government and the Civil Service”.

He added: “Growth is mission critical.”

Political commentator and economist Robert Stewart took a harder line. He said there was “belatedly, an understanding of how important immigration is to the wellbeing of Bermuda” in the report.

However, it contained “little about how long-term guest workers could achieve permanent residency”, he said, calling the report “shoddy” overall.

Mr Stewart added: “Immigration is a highly emotive subject and the recent fiasco, and violence, of Pathways to Citizenship suggests that the problem is far from being resolved.”

This was in reference to protesters blocking Parliament in March 2016, when the former One Bermuda Alliance administration attempted to bring in legislation covering permanent residency and status for long- term residents.

Mr Stewart said the commission had failed to appreciate the appeal to international business of Bermuda’s “absence of direct taxation on their incomes”.

“To believe that all international companies would remain in Bermuda with a tax regime equal to that in North America or Europe is naivety of the highest order,” he added. Branding the report a “financial fairytale”, Mr Stewart said its full implementation would render the island “significantly poorer”.

He said the report showed “short-term, expedient, delusional thinking” that failed to reckon with the broader consequences of its proposals.

Meanwhile, Nick Kempe, the shadow finance minister, said yesterday that the “key solution highlighted throughout the report is the need to grow our population”.

Mr Kempe added: “At the end of the day, we can come up with all the schemes in the world to take more, but you can’t get blood out of a stone. We need a bigger stone.”

He said the Government’s challenge was that “the PLP spent a lot of their time in Opposition ramping up the rhetoric against foreigners”.

“The report clearly states that a critical element of Bermuda’s economic sustainability is to grow Bermuda’s population,” he added. “They couldn’t spell it out any more than that.

“Unfortunately, we need political leadership on both sides to tell this truth to their respective followings.”

Mr Kempe said that the revenue yield from the tax reforms would still fall $30 million short of “the amount we have to pay to service the debt created during times of plenty between 2003 and 2010”.

“This is an almost 18 per cent increase in our total tax burden to pay for the PLP debt.”

The Opposition Senate leader said many of the proposals appeared to “duplicate existing taxes”.

“My concern with the execution is that many of these new taxes will effectively double dip — for example, taxing goods and services at the same time as customs duty.

“Also, there’s a payroll dividend tax and a new interest and dividend withholding tax, which feels like a double hit to Bermudian-owned businesses only.”

Mr Kempe said Bermuda had built a name as a low-tax jurisdiction.

“Many of the new taxes outlined in this report are far more complex than duty, payroll and land tax,” he said.

“These new taxes will be burdensome on business to administer, and expensive for the Government to enforce and collect.

“If all the taxes laid out in the report were to be implemented, it would be a death knell to retail — the foreign currency purchase tax is charged when sending money to pay overseas suppliers for goods, followed by duty upon importation and a goods and service upon sale, is a major problem and massively unfair.”

Of the new taxes proposed, Mr Kempe said that “the tax on rental income makes the most sense for the taxpayer”.

He added: “The collection system is basically there — there are already ARVs on every house for calculation.

“It’s easy to implement and inexpensive to collect as the carve out for homesteads puts the onus on the homeowner, not the Government.”

To read John Wight’s statement in full, click on the PDF link under “Related Media”