Bermuda could raise $750m a year from corporate income tax

The Bermuda Government could receive an average of $750 million a year from the proposed Corporate Income Tax, which is scheduled to be implemented in 2025.

David Burt, the Premier and finance minister, made the announcement as he delivered his government’s Budget Statement today.

If the estimates are accurate, the additional revenue would the equivalent of 60% of the $1.23 billion in revenue that the Government expects to raise in the next financial year. 

Several Bermuda-based re/insurance companies have begun setting aside funds against future corporation tax in the future. 

Burt warned that there could be a delay in the Global Minimum Tax and also said there may not be “significant tax revenues that accrue initially”, but he added: “it is undeniable that there is expected to be an additional source of revenue that will accrue to the Government of Bermuda, and as we are debating how the country should go forward, I am happy on behalf of this Government to present our initial views for the following two fiscal years.”

Burt said he believed the additional tax revenues should lead to major tax reform which could help to reduce the cost of living for residents. Bermuda is frequently placed at or near the top of lists of countries or cities with the highest cost of living in the world.

“Those Bermudians who have made sacrifices under a tax system that many consider unfair and are challenged to make ends meet need realistic hope and confidence that things can and will get better - and they need to not just hear words, but to see how we get to that place of relief,” he said. “As I have said in this Honourable House on numerous occasions, there will be no meaningful reduction in the cost of living in Bermuda without significant tax reform. Any politician who says otherwise is not being truthful.

“That time has now come, and the Corporate Income Tax is the start of significant tax reform. The Tax Reform Commission, chaired by Darren Johnston, will be presenting a set of recommendations on how best to distribute the benefits of the additional revenue and the guardrails that must be put in place given that revenues from the CIT may be variable.

“The Commission will also be making recommendations on what should happen with any funds that are in excess of what is estimated to be collected in any given year and how funds received can be used to reduce Bermuda’s long-term debt.”

Burt said he expected the Government would already be on course to achieve a $50 million surplus by the 2026/27 financial year but said that even if it then received half of th estimated evenue from the CIT it would receive $187.5 million in 2025/26 and $375 million in 2026/27.

“It is important that we adopt a conservative mindset towards additional revenues as there are many uncertainties, especially with the package of qualified refundable tax credits that will be recommended by the Tax Reform Commission and the Government’s stated view that companies ‘in scope’ of the Global Minimum Tax will not be liable for employer payroll taxes,” he said.

“Notwithstanding, there are urgent needs in our community: the need for tax relief for workers and businesses, the need for investment in our infrastructure, the need for relief from high electricity & food prices, and, most importantly, the cost of healthcare.

Burt said he did not want to pre-empt the work of the Tax Reform Commission, but added: “If the $187.5 million of CIT revenue is available in fiscal year 25/26, it is this Government’s view that we must take care of the most pressing issue that affects the most people, and that is the cost of living. The Government is committed to implementing universal healthcare, and it will be important to seed a new health insurance fund with an injection of capital. This will benefit all residents and businesses in Bermuda as reduced health insurance costs make Bermuda’s economy more competitive.

“Additionally, there is an immediate need to reduce the burden of taxation, which directly feeds into higher prices. There will be the opportunity to reduce or eliminate customs duty on fuel imports, which could save the average household up to $300 a year. Food and other necessities are expensive, and though the Government has eliminated duty on 33 staple food/good categories, there are hundreds of other essential items where duty can be eliminated that will result in lower prices. Another important consideration for customs duty is the cost of construction which is driving increases in home insurance policies.”

Burt said additional funds would also go to infrastructure projects as the Government pursues a goal of boosting capital expenditure up to two per cent of gross domestic product.

In the following financial year, Burt said the Government could receive $375 million and this could be used to further support healthcare “which will further reduce the burden on families and businesses, and invest even more funds in capital upgrades, which may see Bermuda reach the 2% capital investment target while providing even more relief to tackle the cost of living and the cost of doing business”.

“Our goal is to deliver relief to those struggling to keep up, and we will deliver on that commitment,” he said.

This could include lowering employer payroll taxes, which he described as a tax on employment in ordet to reduce the cost of doing business while boosting economic growth.

He said Customs duty could also further reduced which would assist consumers and businesses which must pay taxes on imports before being able to sell them.

“Another critical need that must be considered is Bermuda’s social insurance system. State pensions around the world are challenged as populations age and people live longer, but there is an opportunity for these revenues to support the “topping up” of the Contributory Pension Fund to minimise the increases required on businesses and residents to make the fund whole<’ he said.

Burt appeared to concede there was a risk that tax collections would be uneven due to the volatility of profits, especially in the re/insurance sector.

He said: “These are the possibilities based on conservative estimates of revenue from the global minimum tax. However, the Tax Reform Commission will be making recommendations on how to ensure that we can smooth tax collections and the best manner to invest and deploy funds received.

“As we have only estimated 50% of what government advisors said we could expect to receive, should the collections meet or exceed the estimates, there will be excess revenues above what is budgeted for in a single year.

“Additionally, the Government will continue its prudent and considered approach to debt management, recognising the significant impact of interest expense on our budget. Although the next tranche of debt does not mature until 2027, the Government will collaborate with its advisors to, as appropriate – and subject to the recommendations of the Tax Reform Commission, channel excess cash flows to the early repayment of debt.”