Bermuda aims to use corporation tax to cut public debt

Bermuda will codify how excess revenue collected via the new corporate income Tax will be used, including reducing the island's public debt. 

In the Throne Speech delivered on Friday, the Government said it will introduce legislation to update the Corporate Income Tax (CIT) framework and address matters relating to use of excess tax revenue. 

The tax is due to be introduced in January, 2025 and will tax profits at a rate of 15% on global companies which have more than €750 million in annual revenues. 

“Based on the recommendations from the Tax Reform Commission and the International Tax Working Group, this legislation will codify how funds collected by the Corporate Income Tax regime will be reserved for use,” said the Throne Speech, which was read by outgoing Governor Rena Lalgie.  

“The projections state that with the next 10 years, 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. “

The Government also said it plans to give itself the power to review mergers and acquisitions in the private sector which seem likely to create monopolies or to lead to unnecessarily high prices. 

The move comes after the announcements of a merger between leading Bermuda domestic insurers BF&M and The Argus Group and between local grocery chains the MarketPlace and the Supermart. 

“A worrying consolidation in key industries has occurred in Bermuda,” the Throne Speech said. “In critical sectors, consumers may be faced with the loss of genuine choice in service and of the competition that is essential to achieve quality delivery at appropriate costs. Recent local developments in food supply and financial services can have an ongoing adverse impact on prices, which this community can ill-afford.” 

The Speech said the Government had limited options, outside of the utilities sector which is governed by a Regulatory Authority, “to provide conditions for, or to reject, mergers that may concentrate the provision of essential goods or services that may reduce competition and increase prices”. 

It added: “Given the real challenges with costs in Bermuda, residents rightly should expect that the Government should act in the public interest if it is deemed necessary to do so. 

“Therefore, during this legislative Session, the Government will commence consultations on amendments to legislation to allow scrutiny of local mergers and acquisitions that concentrate significant power in essential sectors.”

The moves drew a quick response from business organisation the Bermuda Chamber of Commerce, which said the Government should do more to get its own house in order before expanding its powers into the private sector. 

It also cautioned against making plans to use any excess tax revenues before a penny had actually been received. 

 “While we acknowledge the Government’s work to the various challenges that are faced, both structural and economic, we recommend that they focus on resolving these foundational issues first,” a statement said. 

“Ensuring the success of public education, immigration reform, healthcare, planning, statistical data accuracy and debt management are vast and essential projects.

“Once progress is made in these areas, any adjustments to the economy would be better informed and more sustainable for all stakeholders.”

It added: “It is premature to set lofty expectations without publicly detailing the forecast methodology or collecting the first dollar of corporate income tax.

“We anticipate the Tax Reform Commission’s findings to shed light on these impacts and look forward to the planning on how the tax base will develop.

“We should ensure that the internal gears of government are working well before corporate income tax is received; otherwise, there are risks of an inefficient use of these tax proceeds in the future, providing diminishing returns.”

Ms Lalgie also added a few words of her own at the end of the Throne Speech. She said: " The principles of equality, fairness, good governance and a separation of power underpins Bermuda’s Constitution. They are as relevant today as they were in 1968. 

"That is why I have been diligent in protecting the separation of powers between key institutions such as the judiciary and the police service but the fundamental principle of operational independence necessitates accountability. 

"Rain, blow or shine, I have been guided throughout my tenure by the principles of integrity and accountability in my support for good governance.

I am proud of the progress we have made together but know that more must be done to ensure the continued trust and confidence of those that we serve." 

She added: "There is no doubting the intellectual capital, Bermuda’s global reputation as a financial centre or how attractive it is as a base for international business. These are some of Bermuda’s strengths which can provide opportunities and prosperity for all. They are strengths to be nurtured and protected but not to be complacent about."

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