The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Freeport’s brewing legal challenge to the Budget’s tax increases has been described as “refreshing for the country”, a well-known attorney again suggesting these were largely being driven by external forces.

Carey Leonard, a lawyer with Callenders Co, which drafted the legal opinion to the Grand Bahama Chamber of Commerce over its proposed Judicial Review action, emphasized that it should not be seen as an adversarial conflict with the Government.

Instead suggesting that it was more about Grand Bahama Port Authority (GBPA) licensees understanding and protecting their rights under the Hawksbill Creek Agreement, Mr Leonard said the issues raised by the new and increased taxes “need to be aired by the courts”.

And he again questioned whether the 2013-2014 Budget’s tax increases, plus the proposed Value-Added Tax (VAT), were initiatives being imposed on the Bahamas from outside by the likes of the International Monetary Fund (IMF) and World Trade Organisation (WTO).

Suggesting that the IMF, in particular, seemed to be either unaware or have no understanding of Freeport’s ‘free trade zone’ status, Mr Leonard told Tribune Business: “I don’t think I’ve seen an IMF person in the Port area, and I don’t think they understand how the Port area operates. I’m not sure the advice they’re giving [the Government] is complete.”

It was Mr Leonard who told a recent Grand Bahama Chamber of Commerce meeting that he understood the Government’s tax reform ‘White Paper’ was drafted by a foreign consultant recommended to it by the IMF.

And, placing the Chamber’s impending Judicial Review challenge to the Budget’s tax increases in that context, Mr Leonard said: “Quite honestly, it [the increases] needs to be aired by the courts, and it’s refreshing for the country as a whole at the moment, especially with the IMF breathing down our necks.”

But, seeking to downplay the notion that Freeport’s private sector was on a collision course with the Government, the former GBPA in-house legal counsel said: “This isn’t really a matter of the Port and its licensees taking on the Government so much as there’s new taxes being enacted, and we need the courts to take a look at it and interpret it. Does it conflict with the Hawksbill Creek Agreement?

“This is not business versus the Government, as much as getting the rights sorted out. And the rights of businesspeople and Bahamians are being driven by external forces.”

Tribune Business revealed last week how Callenders & Co had advised the Grand Bahama Chamber to challenge the new Customs 1 per cent administrative processing fee and Environmental Levy, plus the 5 per cent Stamp Duty on profits, dividends or related party payments remitted by GBPA licensees to foreign parents.

However, it warned the Chamber not to challenge the new per hour, per man fees for Customs officers to attend a location outside their normal business station, or outside work hours.

Mr Leonard confirmed the latter point, telling Tribune Business that the law firm had advised GBPA licensees “not to muddy the waters at all. We want to go on things we are certain of”.

He added that English law had established that a government, and its agencies, were indeed entitled to charge the private sector to recover the cost of providing a service,.

However, Mr Leonard described the 1 per cent Customs fee as “a major thing”. He pointed out that wholesalers such as Kelly’s (Freeport) were being ‘double taxed’, paying this both at a trailer’s entry point and when they remitted duty collected on post-paid sales to Customs.

“You keep getting nailed left, right and centre,” Mr Leonard added. “What this has done is bring the licensees together for the first time, which is significant.”

A copy of Callenders’ legal advice to the Chamber, which has been obtained by Tribune Business, noted that there was “an important distinction” between a ‘tax’ and ‘charge for service rendered’. The latter, it noted, applied where a service was provided and the charge was not based on the value of assets or property held.

When it came to the new Customs Management Act regulations, which set out the fees to paid for Customs officers to attend outside their normal location or usual working hours at airports/seaports, Callenders said these could only be set aside through the presentation of “strong evidence” that they were “unjust or unreasonable”.

“The fee charged is a fee based on time spent,” said Callenders. “I consider that the attendance fees are a charge for a service and not a tax because they are not compulsory. A person has the option of avoiding these charges by landing the relevant aircraft or vessel at a place where Customs officers normally attend, and within the normal working hours of 9am to 5pm.”

And, because the attendance fees were not charges on goods, and did not discriminate against the Port area, Callenders advised that the Customs attendance fees did not breach the Hawksbill Creek Agreement, and “not can licensees of the GBPA avoid paying such taxes by virtue of the provisions of the Hawksbill Creek Agreement.

However, when it came to the 1 per cent processing fee, Callenders said it was unquestionably a tax as the $500 maximum ‘cap’ did not “reflect the value of services provided”.

“Accordingly, it appears that more than a ‘reasonable’ profit may be being made on such charge,” the legal advice said. “This suggests that the charge is more in the nature of Customs duties than a fee for a service.”

Callenders also noted that the Customs Management Act made no mention of environmental regulation, or “powers being exercised by Customs for environmental purposes”.

“It is difficult to see how regulations imposing an environmental levy could be made consistent with the policy and objects of the Act in general,” the law firm said, arguing that the regulation could be challenged “as it does not really seek to achieve an environmental goal at all”.

This, Callenders said, was shown by the fact revenues generated from the levy were not being assigned for any environmental purpose.

It added that the same levy rate was being charged on ‘chest freezers with efficiency rating greater than 15.0’ as ‘other crest freezers’, suggesting that whether the product was more environmentally friendly or not made little difference to the tax rate.

Describing the objective of the environmental levy as “highly unsatisfactory and vague”, Callenders said it was still a tax and breached the Hawksbill Creek Agreement.