The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Most Bahamian construction firms are staring at a 150 per cent increase in their Business Licence tax rate, a senior industry executive warning the Government it was “trying to kill the goose that laid the golden egg”.

Steven D’Alewyn, Cavalier Construction’s chief financial officer, told Tribune Business that the Budget’s proposed reforms would push the majority of contractors into the 1.25 per cent Business Licence fee category.

This compared to the current “concessionary” 0.5 per cent rate levied on the entire Bahamian construction industry, which is another ‘high turnover, low profit margin’ industry.

Mr D’Alewyn told Tribune Business that 95 per cent of a construction contract’s value typically went to pay costs - labour, sub-contractors and materials.

Some construction firms, especially the larger ones, would see a 1.5 to two-fold increase in the gross Business Licence fee sums they paid as a results of the 2013-2014 Budget, he added.

Warning that there was “only so much industry can take”, Mr D’Alewyn said construction sector employment, not to mention new hires, was likely to be impacted unless there was a sudden uptick in work.

And, suggesting that the proposed Business Licence fee reforms”can’t stand the way it is”, he also told Tribune Business it “can’t be right” that companies also had to pay taxes on bad debts.

“They’re going to have a huge impact,” Mr D’Alewyn told Tribune Business of the proposed Business Licence fee increases. “At the moment, the construction industry is paying the concessionary rate of 0.5 per cent, instead of 0.75 per cent.

“We’re a large volume, small margin industry. All our flow through on the revenue side is a flow through of costs. Ninety-five per cent of what we collect is used to pay labour, sub-contractors and materials.”

He added that the construction industry’s margins were “nowhere near” that of the 50 per cent gross average in the retail sector, for example.

Mr D’Alewyn was among construction industry executives who successfully made the case for the sector’s “concessionary rate”, the former Ingraham administration including this among the 2011 amendments to the Business Licence Act.

However, the Christie government is now moving to do away with that and most other “special categories” under the Business Licence Act.

The proposed new rates are:

Businesses with turnover between $500,000 - $5 million: 0.75 per cent

Businesses with turnover between $5 million to $50 million: 1.25 per cent

Businesses with turnover between $50 million to $100 million: 1.5 per cent

Businesses with turnover greater than $100 million: 1.75 per cent.

“You’ll find most construction businesses of any size easily make $5 million,” Mr D’Alewyn told Tribune Business. “Five million dollars is a modest size in our books.”

Noting that most contractors required just two-five houses to reach this turnover level, he added: “For all intents and purposes, most people in the construction industry are going to be showing a 150 per cent increase in Business Licence fee rate.

“If you get up to a three-fold increase, you’re looking at 1.5 times, maybe two times what they paid before. You’re not talking small numbers, especially in this market when people are scratching around for work.”

A construction business with a $30 million annual turnover, for example, would currently pay a $150,000 Business Licence fee at the 0.5 per cent rate. But, under the latest proposals, this would increase to $375,0000 at the 1.25 per cent rate - more than double the current number.

Mr D’Alewyn said the Business Licence fee increase could not be viewed “in isolation”, adding that it had to be placed in the context of increased import duties, National Insurance Board (NIB) contributions and such like.

He added that construction material costs were also likely to rise due to the planned 1 per cent Customs entry processing fee, which will replace the existing $10 per entry Stamp Duty.

Mr D’Alewyn also questioned how the Business Licence fee increases “dovetail” with the proposed Value-Added Tax (VAT), as the former was supposed to be reduced to a flat $100 fee across-the-board.

“With this what you’re seeing is a targeting of the larger businesses, and the banks as well with this 3 per cent hike,” he told Tribune Business. “They’re basically trying to kill the goose that laid the golden egg. There’s only so much industry can take.”

Mr D’Alewyn contrasted this with the Government’s latest real property tax amnesty, and the heavy discounts given to persons who had not paid for “donkey’s years”.

Suggesting this showed the Government’s inability to collect due revenues from existing sources, he added that the administration was reverting to “tried and trusted routes of taxation” - hitting existing payers for more, and “successful local businesses”.

However, Mr D’Alewyn said it would be almost impossible to pass the Business Licence fee increases on to clients, as this “could scare them off home building” and bring the construction industry to a grinding halt.

And he added: “You’re basically paying a tax on something you might not collect. In the old days it used to be on a cash receivables basis, where you got an allowance for bad debts.

“Now, your turnover could be $50 million, you don’t collect a penny of it and are paying taxes on it. You pay a fee on income you never collected. It’s simple, but it can’t be right. Everywhere else, you get an allowance for loss relief, but not here. It can’t stand the way it is, it really can’t”.