Premier bullish about impact of corporate income tax
David Burt has “absolutely no worry” about the potential departure of critical international business as a result of the implementation of the corporate income tax.
The Premier added that extra staff had to be hired to deal with an influx of about 100 companies applying to operate in Bermuda because of the new regime being brought into force in the new year.
Mr Burt was speaking during an interview with The Royal Gazette after the publication of the Pre-Budget Report, which presents the Government’s fiscal objectives and budgetary outlook for the year ahead, and the Fiscal Responsibility Panel Report, which makes recommendations on spending.
The Government plans to introduce a statutory 15 per cent corporate income tax that will be applicable to Bermuda businesses that are part of a multinational group with annual revenue of €750 million (about $808 million) or more.
According to Price Waterhouse Cooper’s August update, in the United States there is a federal CIT of 21 per cent and state CITs ranging from 1 per cent to 12 per cent, although some states impose no CIT.
Mr Burt said: “We have seen the opposite under CIT; we have seen companies moving to Bermuda due to the fact that we have put in place a regime with our international business partners and tax experts.
“We’ve had to hire people in the Registrar of Companies to process the amount of additional applications that are coming in. You will see those come up in the incorporation statistics.
“I have absolutely no worry about that [IB leaving] because the thing that you have to remember is the corporate income tax is global.
“Moving jurisdictions does not get you out of the tax and that is why Bermuda has to compete on other things. We have an amazing regulator, but we also have to reduce the cost of living and doing business.
“That is the reason why we are laying forward and continuing to reduce expenses via taxes … all those things to make sure that Bermuda is a more competitive economy.”
The Fiscal Responsibility Panel said in its report this month that while the Government has been “exemplary” at communicating with international business and other stakeholders, “the continued residency in Bermuda of in-scope companies for all time cannot be assumed and will be dependent on domestic, international and corporate developments, many of which are beyond the Government’s control”.
Mr Burt added: “One of the things that has always been said by the Fiscal Responsibility Panel and the international business community is that, as CIT comes into place, it is important that we keep our economy competitive by reducing costs and the best way to do that is via tax reductions.”
On tabling the Pre-Budget Report in the House of Assembly this month, Mr Burt said the Government is expected to accumulate sufficient funds in the upcoming financial year to deliver $45 million in tax breaks.
He presented plans, subject to consultation, to reduce taxes on energy, eliminate customs duty on building supplies, lower private car licensing fees and slash land tax rates.
An expected $187.5 million injection from the CIT is expected to enable the Government to increase expenditure by more than $100 million in this financial year while retaining a budget surplus of roughly $84 million to be ring-fenced for paying off the island’s debts.
Mr Burt said: “In line with the Fiscal Responsibility Panel’s recommendations, we have laid out a path that will make sure that the $605 million of debt, in 2027, is able to be paid in full.
“That will reduce our annual interest payments by about $20 million a year, which will enable us to have more investments in infrastructure and services in the country.”
The Opposition took aim at the Government’s Pre-Budget Report, saying it was at odds with the independent Fiscal Responsibility Panel Report and that international business is a crutch for an otherwise “flat or shrinking local economy”.
Rena Lalgie, the Governor, said in the Throne Speech that the Government should have enough in additional tax receipts to eliminate Bermuda’s debt and establish a sovereign wealth fund to make strategic investments for Bermuda’s future.
David Burt said that such a fund had been discussed by the Tax Reform Commission, the Fiscal Responsibility Panel and the International Tax Working Group.
The Premier said: “I’m going to await the recommendation of the Tax Reform Commission but I think that over the next few years Bermuda will be able to build up a significant amount of reserves that can be used and invested for our country's future.
“My commitment is to make sure that we put protections in place so those revenues can be used for the future benefit of Bermudians in this country.
“It is vitally important ... so we’re going to continue to look at and examine those.”
Asked if the people of Bermuda were feeling the effects of economic recovery and the tax breaks being implemented by the Government, Mr Burt insisted the situation would be worse without them.
He said: “If the Government was not reducing taxes, the impact would be higher. That is what has been recognised in the Fiscal Responsibility Panel Report, which has indicated that Bermuda's inflation is lower than our peers because of the significant work of which we've done to reduce those taxes.
“There are things of which we’ve done, which will certainly have an impact that people will feel.”
Mr Burt indicated that the Government still intended to increase the workforce by approximately 8,000 after Jason Hayward, the Minister of Economy and Labour, said the target was “too ambitious” to achieve in the original five-year plan.
“I’m not going to go into what's more realistic on that aspect,” Mr Burt said.
“What I am going to say is that you cannot have a growing workforce without increasing jobs in the economy.
“We’re seeing buildings going up in Hamilton, additional tourism work and matters that are related to Fairmont Southampton as well. There’s going to be a continued increase in jobs.
“Yes, we want to have more jobs in the economy but we’re not going to have more jobs unless we have additional spaces for people to live and to work, for people to come back and return back to be a part of that workforce.
“All those other things have to be done as well ... and that is the reason why we’ve had significant investments in affordable housing.”
David Burt delivered a message of goodwill to the people of Bermuda, reminding them to look out for those who may be suffering grief and loss.
The Premier said he had to console a member of his team who had lost one of her best friends last Monday, adding: “The season is a happy time for many but it's also a challenging time for some families who have dealt with grief and loss, whether through natural means or through violence”.
Offering words of comfort, he added: “For those persons, I want you to know that the Government remains committed to making the investments which are necessary to ensure that our country can be more safe as we go forward.
“This Christmas, I wish that people would heed our advice, which is to try to look after your friends and neighbours as best as possible.
“Yes, Bermuda is on the right track, yes, the economy is improving, yes, there are more jobs, but there are still persons who are in need.
“There are still persons who are struggling to keep up with prices and those things, so during this season, while we focus on our families and others, let us try to make sure to look out for our neighbours.”
• To read the Bermuda Fiscal Responsibility Panel Report and the Pre-Budget Report, see Related Media
• UPDATE: this story has been amended to make clear that it was an influx of 100 companies that required extra staff to be hired, not that there were about 100 extra staff hired. Apologies for the sub-editing error
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