Shadow Finance Minister On Tax Reform

November 22, 2018

We “can come up with all the schemes in the world to take more, but you can’t get blood out of a stone and we need a bigger stone,” Shadow Finance Minister Nick Kempe said, adding that the recently released Tax Reform report “clearly states that a critical element of Bermuda’s economic sustainability is to grow Bermuda’s population.”

Senator Kempe’s comments follow after the Tax Reform Commission’s Report was tabled in the House of Assembly on Friday, which suggested new taxes and reforming some existing ones which they said could create an additional yield of approximately $147 million over a 2-3 year period.

One of the proposed new taxes is a tax on rental income as a “means of generating revenue and broadening Bermuda’s tax base,” with the report recommending a flat tax of 5%.

It also recommended a General Services Tax of 5% tax levied on services, a Managed Services Tax which applies to services outsourced by local companies to foreign service providers, and a withholding tax on interest and/or dividend income that is attributable to local companies.

The report noted that Bermuda has an aging population who will require increased health benefits which will increase the cost of health care and we also have a declining population which means a shrinking tax base, adding that a “critical element of Bermuda’s economic sustainability is to grow Bermuda’s population.”

The Government said they will “closely evaluate and consider all recommendations” and the “appropriate consultation with the various stakeholders will be conducted before any major changes are made to our tax system.”

Senator Kempe said, “First of all, it’s important to note that the intended new revenue from these taxes is $30M less than the amount we have to pay to service the debt created during times of plenty between 2003-2010.

“This collection of new taxes is more than simply an effort to tax more fairly or to redistribute wealth. This is an almost 18% increase in our total tax burden to pay for the PLP debt. The taxes highlighted in the report will be borne mostly by Bermudian businesses and Bermudian consumers. If it weren’t for the debt created between 2003-2010 there would be no reason to increase the total tax burden.

“After my first reading of the report, many of the proposed taxes seem to duplicate existing taxes. My concern with the execution is that many of these new taxes will effectively double dip – for example, taxing goods and services at the same time as Customs duty. Also, there’s a payroll dividend tax and a new interest and dividend withholding tax, which feels like a double hit to Bermudian owned businesses only.

“The key solution highlighted throughout the report is the need to grow our population. At the end of the day, we can come up with all the schemes in the world to take more, but you can’t get blood out of a stone. We need a bigger stone.

“It’s the obvious solution, and the problem is that the PLP spent a lot of their time in Opposition ramping up the rhetoric against foreigners. The report clearly states that a critical element of Bermuda’s economic sustainability is to grow Bermuda’s population. They couldn’t spell it out any more than that.

“Unfortunately, we need political leadership on both sides to tell this truth to their respective followings. We need more foreign capital and more foreign people to come to our island. The recently reported demographic trends make this reality even more evident.

“Raising the amount of tax up to 20 percent of GDP seems sensible, given the dire straits we’ve been put in. It is unfortunate, however, as different models of equitable collection would be possible without increasing the total burden were it not for our crippling debt.

“Bermuda has made a name for itself over the years as a good place to do business. Low tax and light regulation. Many of the new taxes outlined in this report are far more complex than duty, payroll and land tax. These new taxes will be burdensome on business to administer and expensive for the Government to enforce and collect.

“If all the taxes laid out in the report were to be implemented it would be a death knell to retail — the foreign currency purchase tax is charged when sending money to pay overseas suppliers for goods, followed by duty upon importation and a goods and service upon sale, that’s a major problem and massively unfair.

“Couple that with payroll/dividend tax for Bermudian owner-operators and a further dividend and interest withholding tax and it would seem that Bermudian business is expected to bear the brunt of the debt service burden created by the PLP’s debt.

“A major challenge with the more complex taxes will be with collection and compliance. The reason why many past Bermuda Governments like duty, regressive as it may be, is because it’s simple to collect. You’re holding onto peoples’ stuff until they pay; there’s little complexity there.

“Trying to collect a management service tax or a goods and service tax is going to require a far more sophisticated collection apparatus — decreasing the revenue estimated in the report on a net basis as the cost of Government collection increases. Disappointingly, there’s nothing in this report about the cost of collection which will cheapen the quality of debate surrounding these issues.

“If I had to choose one new tax amongst those recommended, the tax on rental income makes the most sense for the taxpayer. The collection system is basically there – there are already ARVs on every house for calculation. It’s easy to implement and inexpensive to collect as the carve out for homesteads puts the onus on the homeowner, not the Government.

“Unfortunately, any new tax [and the rental tax is no exception] will put more pain on Mr. and Mrs. Bermuda. Homeowners with mortgaged rental properties will find their spread, if any, reduced and eventually renters will find their rents increased at renewal time.”

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Comments (49)

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  1. Agreed says:

    This is spot on

    • de onion says:

      Agreed – and IMO we are running a real risk of killing businesses and innovation in Bermuda. Why start a business when taxes are high and going to be higher? Why tax when economic indicators are showing that we are heading the way of a recession?
      We have to tax because this Government has not/is not providing the economic stimulus we need. It is fintech or nothing and at the moment, the reality is: nothing.
      Our population stagnates, no new jobs are being created, taxes are stopping people from spending …. and we have this massive PLP created debt that we cannot afford.

      • sage says:

        Spot on? He says “you can’t get blood out of a stone and we need a bigger stone.” So you can get blood out of a stone if it is bigger? Terrible analogy. If he had said, ‘we can only extract so much tax from a limited amount of people, we need more people’, he would have been spot on.

        • Charlie says:

          As a Bermudian I am tired of this island. I am tired of being searched at the airport as an honest citizen whilst watching the rest of the plane walk out with nothing to declare. I am tired of the racism and the persecution when paying thousands of dollars of duty. The day is coming when I will leave. I pay more tax than most and the government wants more to pay for their overspending. I spend a lot of time working with young folk, but they leave and do not wish to come back. The stone isn’t going to grow, the people do not want it to.

  2. Seriously??? says:

    The Government claims that this new tax structure will help the poor. It’s highly unlikely that there will be anything left for the poor when such a large portion of our taxes go to paying civil service salaries.

    Some argue that to lay off government workers will only increase those dependent on financial aid. But since the collective bargaining agreement salaries paid to the civil servants are generally higher than what most of us are earning in the private sector, it may actually be less of a burden on Mr. and Mrs. Taxpayer if they were receiving financial aid. It’s not like it will impact the level of service received.

  3. 2 Bermudas says:

    If you want to tax rent based off of ARV then what about if the house or apartment is empty for say 6 months of the year? Is the full tax still payable?

    I think land tax on all PLP constituencies should be increased to pay for the PLP debt? How does that sound?!

    • wahoo says:

      I would say that there should be no tax because the unit is not generating the income that the plp government want a share of. What is funny (in a sick way) is that the plp are trying their best to destroy the rental industry by chasing away wealthy foreigners who rent these homes and apartments in the first place….maybe they do not realize that.

  4. Mike says:

    Who is going to pay the tax on rentals?

    The foreigner that the Govt doesn’t want – or the Bermudian who has to rent but cannot afford to pay it?

    Bad.

  5. sandgrownan says:

    It’s a well thought out piece, and right on the money (no pun intended).

  6. Joe Bloggs says:

    No mention of the fact that the Minister of Finance announced last week that we are taking on more debt in order to pay down on our existing debt?

  7. de onion says:

    This:
    “This collection of new taxes is more than simply an effort to tax more fairly or to redistribute wealth. This is an almost 18% increase in our total tax burden to pay for the PLP debt. The taxes highlighted in the report will be borne mostly by Bermudian businesses and Bermudian consumers. If it weren’t for the debt created between 2003-2010 there would be no reason to increase the total tax burden.
    Is so true

  8. rodney smith says:

    Land Tax is based upon your ARV . Most blacks have their investments in real estate .An asset that is dead in this market . Additionally , Blacks fear more people coming into Bermuda because every other group has leap frog over blacks that have been standing in line for years . This fear is real .A Labour Government spends and how do we change the mind set of 2006 -2010 that said , ” If the OBA is so smart let them fix the problem , .. THIS WAS NO ACCIDENT .” I am calling no names but Mrs. Cox did not help the situation either .Bermuda , We need to have a heart to heart talk ..Spending more money without giving up some old spending habits is not going to work .And when you finish reading this ,”Pray for Craig ,.”

    • Earth watch police p says:

      Pray for Craig he is not the premier I predict the plp in power for another 15 to 20
      Years praying won’t help anything.

  9. leaky minister says:

    OBA get ready, clueless PLP are going to dig a BIGGER hole for you to try and level out again.

  10. BS says:

    The problem is that the tax burden is getting so big that soon you won’t be able to attract foreigners. Our aging population will only get older as our educated young Bermudians will flee the increasing taxes for cheaper cost of living .

    • Joe Bloggs says:

      You may also find that aging baby boomers flee Bermuda. I don’t know many of my generation who can afford to live in Bermuda for 25 years after retirement. Some are already working past the age of 65 so they can afford to remain in Bermuda.

  11. newperspective says:

    When I read blame-game comments it infuriates me to no end! When will both political parties wake-up and realize partisan politics will continue to divide us as a people with a common value!

    Based on my research and observation both political parties, who have served as Government-of-the-day, are to blame for the debt Bermuda is burdened with.

    Anyone interested should read the Auditor General and Commission of Inquiry reports, together with the lack of oversight action on the part of the Public Accounts Committee, for the past 15 years. My biggest disappointment of the three entities is the Commission of Inquiry for not recommending legislative changes to the Government’s current financial reporting process.

    Just relying on internal controls, audit reports and all the other , supposedly oversights, have not worked to hold Ministers accountable for misappropriation like behaviour. It’s anyone’s guess where we’ll end up if we allow the Ministers to continue like before!!

    Most likely, debt and debt servicing costs will continue, without legislation in place to put some teeth and accountability, for Ministerial political self and interest.

    Having a “bigger stone” is not the only answer. We need to minimize the risk of “Conniving, Opportunists, Relishing, Rewards, Unethically, Procured, Through, Immoral, Obsession and Narcissism”. Take the first letter of these words and you have the word corruption!!

    Corruption has plagued us and will continue if we don’t attack it head on. We need aggressive action now to avoid it continuing unchecked!!!

  12. Where, Nicky, is the money for ALL from America Cup Bermuda??
    Take a seat.
    You really think Bermudians are stupid.
    Do not forget the ignorant wrath of your party, oba, to weaken THE VOTE.
    You are NOT in power.
    Sit down!!
    Kool Aid consumption would be a great tax quencher!!

    • DeOnion says:

      Except that the way the plp behave you would think the oba is in power!

    • 2 Bermudas says:

      Hahaha!! Still waiting for the results from Global Hue to come in. How much did we pay them?!? I’ll wait… Keep drinking de titty milk!! Ha ha ha!!

    • Question says:

      Your $60m Grand Atlantic still stands empty.

    • sandgrownan says:

      “..You really think Bermudians are stupid..”

      Don’t ask questions to which you might not like the answers. Fact remains, taxation to pay off PLP debt. That’s PLP debt.

  13. Black Soil says:

    The PLP want to raise taxes to SPEND MORE ON THEMSELVES. The PLP have no clue how to grow the economy for everyone. They just want an economy that helps them.

  14. Hmm says:

    There are so many bermudians out there who split their homes into apartments to help pay their mortgage. If a home owner can prove they’re still paying a mortgage for the property they should be allowed to forgo paying the rental tax (because it’s not even income, goes directly to the bank), but for those people with old money who own homes outright, had homes passed down to them or are one of those people who own multiple properties and rent them out they should be the ones getting taxed. Many middle class bermudians heavily rely on rent to help pay their mortgage, without which many would lose their homes!

    • Triangle Drifter says:

      Why should those who made wise decisions in their youth, bought houses instead of new cars & travelling the world, made sacrifices to leave to their children if they choose, be penalised through taxes for the benefit of those who blew their best earning years on frivolous stuff like fancy cars & travel?

      An income providing house is an investment for a better future for the owner or his family. It is not a source of revenue for people who did nothing towards it. The owner paid tax when the land was bought, paid duty on everything that went into the construction of the house, paid payroll tax for all who had a job building that house, paid duty on every item of maintenance, paid payroll tax for everyone who did the maintenance, paid land tax every year & pays death tax on the property when the day comes that he leaves.

      What does the owner get for all of this tax? Can’t even rely on the trash to be picked up.

      • Toodle-oo says:

        ~Why should those who made wise decisions in their youth, bought houses instead of new cars & travelling the world, made sacrifices to leave to their children if they choose, be penalised through taxes for the benefit of those who blew their best earning years on frivolous stuff like fancy cars & travel?~

        I think this is a good place to insert one of OJ’s favorite terms.
        “Two Bermudas”

        • Triangle Drifter says:

          I guess you are right. There are those who plan for the future & those who live for the day & think about tomorrow tomorrow.

      • Hmm says:

        You completely missed my point. There are many affluent bermudians who have large amounts of wealth and property which dates back over 100 years. They didn’t sacrifice or do any work off their own backs, it was all the ancestors.

        There are bermudians who own close to 100 homes and all they do for a living is collect rent! Are you meaning to tell me that person worked and sacrificed in THEIR lifetime to own close to 100 homes? No! Their family comes from money and as such they could easily build more wealth. People like that (the wealthy) should be getting taxed more! It works that way in most other countries, but for middle class people who are already struggling they should have to burden the same amount of tax as those who are already rolling in money!

  15. Cow Polly says:

    Welcome back Nick

  16. watching says:

    Kempe needs to realize that these recommendations are simply that, recommendations from the Tax Reform Commission, a bipartisan committee, where Jeanne Atherden actually was a member of.
    They came up with options to increase revenues in the form of tax reform. Nowhere has it been stated that all of these will be implemented, or even if any will be implemented. Clearly they will be evaluated and then next steps will be discussed.
    Kempe’s opinion is important from a political sense, but let’s not be disingenuous and believe that all of these are ready for implementation. That would be inaccurate.

    • red rose says:

      and do you really believe they won’t all be put in place? How else will the PLP raise revenues? There are no new jobs, so no new people to tax, there are no new businesses, so no new business to tax.
      We have a debt payment of $500,000 A DAY thanks to the PLP – how else are they going to dig themselves out of their own hole?

  17. Chris says:

    We need to start see so conservative speakers here to explain why governments tax and what that actually does to cost of doing business and thus also how it affects the cost of living. People here do not seem to see the connection hand out just make people more reliant on Governments not independent of them. Making modern slaves its the secret socialist agenda.

    Bring on Ben Shapiro…

  18. Proven says:

    Can’t tax our way out of this! Need more people on island now. Tick, tick, tick.

  19. Fool me once says:

    Cant wait until the PLP have to give long term residence to non Bermudians.
    Remember all that stink the marchers and them lot done when OBA done it..
    Getting the popcorn READY.

    • Toodle-oo says:

      They’d rather (and will) let the island go down the tubes than risk giving the vote to people who don’t look like them .
      Burt’s recent utterances on what immigration ‘should’ mean demonstrates this clearly .
      With the PLP back in international confidence in Bermuda has plummeted , there’s no two ways about it .
      The bitter medicine I’ve repeatedly spoken of that we have to take thanks to 1998-2012 hasn’t even begun to be administered yet and people are howling already. They haven’t seen anything yet .

  20. campervan says:

    Where is the incentive for me to renovate my home and apartment, employing Bermudian tradesmen, so we can rent it out? I may as well play it safe and keep my dollars in investments which are not taxed.
    This proposed tax could hurt renters, the construction industry, and result in property not being maintained.

    • Wow says:

      You make the incorrect assumption that your investments can’t be taxed! Just stand by and wait to see what happens in February!

  21. lol says:

    PRC and long term residences get ready, you will soon have Bermuda citizenship unless the PLP are so stubborn they would rather run us into the ground.

  22. same old 2 and 6 says:

    Everyone in Bermuda needs to be held accountable for paying their fair share and doing what we can to improve the quality of life here. We do not need higher taxes as it will crush those who are trying to pay their fair share. We need everyone to pull together to tackle the problems we face. Unfortunately, it seems that only a few are taking the burden on their shoulders while others are sucking the economy dry. From my perspective, the government in power has always had a problem understanding what side of the bread is buttered on (for ALL Bermudians) and as a result everyone is paying dearly for this mess. Yes, increasing the tax base is one way of helping the situation. Managing the public purse is another initiative – outsourcing as much as possible because this lends itself to accountability. Also, those who are finding ways to not pay taxes at all, should be made to do so. We need visionaries to help stimulate the economy. An example of this was with Grant Gibbons helping to bring the America’s Cup to Bermuda. Of course, we had to spend money to bring the event here, but the economic stimulus made it worthwhile as it poured money back into the economy and ultimately Bermudians pockets. It seems that a portion of people here cannot see beyond their noses at what really needs to be done. It seems that they are hell bent on seeing us take a major nose dive economically into the point of no return where we have to sell ourselves out because of mismanagement. Vision takes looking at the present (the here and now) to make a better future – come on Bermuda, we can do this! On this Thanksgiving Day, I am thankful to be Bermudian. We have some of the best people in the world living here and we are so incredibly blessed. Let’s act like we are grateful for this unique and wonderful place we call HOME.

  23. Dready says:

    Vote PLP and vote for poverty

  24. Jus' Askin' says:

    do we need more people ‘on island’ or more people ‘working’?

    Guest workers are not here to benefit ALL of Bermuda.

    Businesses use the cheap labor to maximize profits at the expense of locals.

    The monies leaving this country via Guest Workers is one of the reasons why we can not get out of this downwards spiral.

    “You Make it Here, You Spend it Here” ;-) ;-)

    • Toodle-oo says:

      *The monies leaving this country via Guest Workers is one of the reasons why we can not get out of this downwards spiral.

      “You Make it Here, You Spend it Here*

      You haven’t got a clue , do you ? So anxious are you to blame the guest worker instead of the ‘party’ that got us here that you can’t even fathom where 95% of your money goes when you make a local purchase . Everything that you buy here comes from overseas or is made from goods that are imported.
      You own a car ? A bike ? A TV , a cell phone ? Ever go on a trip overseas ? Maybe you should stop that too ’cause you’re taking your money out of the island. Now , think of a hundred other things as well , your money is going overseas !
      What guest workers send overseas (at their own discretion and rightful choice) has nothing to do with you at all. None of your business whatsoever.
      And by the way , just how much good is your money doing sitting in a bank ? That isn’t benefiting me at all . Maybe you should just hand some of it to me.
      If I were you I’d be more worried about our ability to earn US$ so we can pay for the importation of our oil to keep the lights on and our groceries.

      • Jus' Askin' says:

        let us unpack this

        if I import goods to Bermuda, I may be improving quality and standard of living in Bermuda

        Guest worker sends monies away, NOTHING is coming back to Bermuda

        Guest workers should be taxed 20%-35% of their wages

        “You Make it Here, You Spend it Here” ;-) ;-)

        • Toodle-oo says:

          You don’t seem to realize that we’re all currently loosing more than 35% of our wages to taxes. And it’s going to get a lot worse considering that our illustrious government has to somehow extract more than $40,000 from every man , woman and child in Bermuda to pay for the debt they created.
          Any other brilliant ideas ?
          And stupid smilies still don’t add any validity or cleverness to you posts.

          • Jus' Askin' says:

            the smiles are not for YOU or to validate my post :-D

            do like how You have nothing to say on my point that was made~

            “…if I import goods to Bermuda, I may be improving quality and standard of living in Bermuda

            Guest worker sends monies away, NOTHING is coming back to Bermuda…”

            :-D

            • Toodle-oo says:

              You sending money overseas for purchases is no different than the guest worker sending a portion of his earnings home for savings.
              You seem to believe that the guest worker has NO expenses whatsoever while here and puts nothing back into the economy.
              If you think that I had nothing to say on ‘a point’ that you made it just demonstrates that you’ll never get it .

  25. BS says:

    I’m afraid ( almost certain) the new taxes are only putting cookies in the cookie jar !

  26. Jus' Askin' says:

    let us unpack this

    if I import goods to Bermuda, I may be improving quality and standard of living in Bermuda

    Guest worker sends monies away, NOTHING is coming back to Bermuda

    Guest workers should be taxed 20%-35% of their wages

    You Make it Here, You Spend it Here :-D