Holding account planned for part of CIT revenue
A portion of corporate income tax funds from the next fiscal year is expected to be placed in a suspense account to provide a buffer in case of possible variations in projected and actual revenues, the Government said yesterday.
The Corporate Income Tax Act laid out a 15 per cent levy on the profits of multinational enterprises which exceed €750 million (about $770 million) of annual revenue.
A note of caution was sounded by the independent Fiscal Responsibility Panel in its annual report, issued last month, when it called for the funds to be put on hold for a period.
The group acknowledged that estimated payments on the tax would come into effect in about the middle of the 2025-26 fiscal year.
It added: “However, until taxpayers have submitted final returns in late 2026, such revenues are payments on account rather than certain revenues, and most or all should be held in some form of suspense account rather than treated as available government revenues.
“They will thus not be available to the Government until fiscal year 2026-27.”
The Government’s Pre-Budget Report projected a yield of $187.5 million from the corporate income tax in 2025-26, earmarked to “support critical investments and fiscal stability”.
It said that proceeds from the CIT “will allocate $50 million to launch universal healthcare, improving hospital services and expanding access to preventive and specialist care”.
A government spokeswoman said yesterday: “The Government intends to place a proportion of the 2025-26 revenue from the corporate income tax in a suspense account.
“This approach provides critical headroom to address potential fluctuations between projected and actual CIT revenues as final tax returns are submitted.
“By doing so, the Government ensures fiscal stability while maintaining prudent financial practices.
“However, it is vital that costs are reduced in Bermuda to ensure our economy remains competitive and that preventive healthcare is expanded; it is for that reason that the Government has set out significant tax reductions and major investment to start universal healthcare.”
The Fiscal Responsibility Panel highlighted its recommendation for the establishment of a stabilisation fund “invested in relatively liquid assets, which can be drawn down to protect the budget against fluctuations in income and economic or other shocks”.
It added: “The size of such fund should be related to the variability of revenues allocated to the underlying budget [and include any CIT revenues so allocated against our advice] and the possible impact of shocks.
“Using the recent pandemic, or the global financial crisis of the late 2000s [which resulted in an increase in Bermuda’s net debt of over $1 billion] as a yardstick would suggest building a stabilisation fund in the region of $1 billion as soon as funds allow.
“The existing Sinking Fund serves this purpose: it could and should be rebuilt and redesignated.”
Yesterday, a government’s spokeswoman said it was “acutely aware” of ongoing risks posed by potential shocks to the global economy.
She added: “However, it is vital that we support Bermudians and businesses in Bermuda.
“The [finance] ministry continues to plan for various scenarios, leveraging insights from the Fiscal Responsibility Panel, the Tax Reform Commission and other advisers.
“These bodies will play an essential role in determining the optimal allocation of revenues between debt repayment, the stabilisation fund, capital expenditures, and other priorities.
“As noted in the FRP’s 2024 report, the Government has taken commendable steps in the design and implementation of the CIT.
“The panel stated, ‘the Government should be congratulated for the way it has handled the exceptionally difficult, and complex, issues arising in designing the CIT to date’.
“This endorsement reflects our commitment to managing Bermuda’s economic transition responsibly.”
The FRP said that CIT revenues should be allocated to, among other things, “reducing the very large unfunded liabilities in the social insurance system”.
Asked about the extent to which that recommendation would be acted on, the government spokeswoman said yesterday: “The Government also remains committed to addressing the long-term sustainability of its pension system.
“As highlighted in the 2024Budget Statement, pension reform for the Public Service Superannuation Fund is well advanced, and does not require or rely on CIT revenues.
“The Pre-Budget Report should be viewed in addition to the Budget statement and the Government awaits the report of the Tax Reform Commission regarding any further recommendations for CIT revenue use.”
She added: “The Government remains focused on safeguarding the long-term financial health of Bermuda while addressing the needs of its citizens and businesses by reducing costs via tax cuts and increased investment in healthcare.”
• To read the Fiscal Responsibility Panel Annual Assessment and the Pre-Budget Report, see Related Media
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