Bermuda's independent Fiscal Responsibility Panel has urged further taxation reform, in its first annual assessment of the island's fiscal strategy since the appointment of a new government.
The Panel comprises three leading international experts in public policy, finance, and financial stability, and was established in 2015 to review, monitor, assess, and publicly report on the fiscal reform progress of the government.
While welcoming reforms to make payroll tax more progressive, and new taxes on banking and insurance, the Panel expressed disappointment that the Office of the Tax Commissioner remains under-resourced, despite its recommendation last year that funding be increased. It said this needs to be addressed as a matter of urgency, arguing that the revenue return from such investment would be significantly greater.
The Panel criticizes the island's current tax structure as excessively weighted towards the taxation of labor and goods, noting that this has the "perverse effect" of taxing companies who create employment while leaving those without economic substance largely exempt from tax. It says payroll tax will become an increasingly problematic source of income as Bermuda's comparative advantage as a place for international companies to do business is eroded through reductions in rates of corporation tax elsewhere.
A goods and services tax was scheduled to be introduced in 2017 but was delayed to April 1, 2018, in the territory's 2017 Budget. The Panel said it continues to believe a broader goods and services tax is needed.
Agreeing with the Government's concern about the degree of income and wealth inequality, the Panel recommended fiscal measures to address the issue, including taxation of dividend income where dividends are being taken as a form of salary payment, and further general taxation of significant incomes from capital. It also called for more progressive taxes on labor.
The Panel said Bermuda's Tax Reform Commission would greatly benefit from knowledgeable and independent external advice, probably by building on the Government's ongoing cooperation with Caribbean Regional Technical Assistance Center.
By Courtesy of Lowtax.net