The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known QC yesterday “guaranteed litigation” against the Government, as fears deepened among Freeport’s private sector that it is using Value-Added Tax (VAT) to “claw back” previous court rulings that upheld the Hawksbill Creek Agreement.

Fred Smith QC, the Callenders & Co attorney and partner, who won most of those cases against Bahamas Customs, told Tribune Business that the Government was again seemingly seeking to “disregard” Freeport’s founding agreement.

For this newspaper can reveal that the Government, apart from its plan to levy 7.5 per cent VAT on all business-to-business services transactions in Freeport, has also created other concerns for the city’s business community with its tax reform plans.

For instance, it appears to be trying to circumvent, or “claw back”, a ruling Mr Smith won several decades ago on behalf of Callenders & Co, which dealt with the firm’s right to import - duty-free - a passenger vehicle for use in its business activities only.

The VAT guidance notes , though, say Grand Bahama Port Authority (GBPA) licensees will have to “demonstrate” that passenger vehicles they import are to be used “solely” for business purposes.

“A vehicle can only be imported VAT-free if it is to be used solely for the purposes of a business of a Port licensee, and will not be taken out of the Port Area,” the VAT guidance notes say.

“Commercial vehicles such as vans, and industrial vehicles, are usually considered to be solely for business purposes. However, passenger vehicles are considered to be for private purposes unless the Port licensee can demonstrate that the passenger vehicle is to be used solely for a business purpose.”

Mr Smith agreed that this was designed to circumvent several Supreme Court verdicts he had won, which affirmed that it was the Port Authority - not Customs - that determined which goods came in ‘duty free’.

“On that particular clause, as with most cases regarding the Hawksbill Creek Agreement, the Government is monumentally confused about it,” Mr Smith told Tribune Business.

“Yet again, they are stupidly, ignorantly and arbitrarily seeking to disregard the Hawksbill Creek Agreement, and I guarantee litigation against the Government on this issue.”

Mr Smith said verdicts he had won, in cases such as those involving the Callenders car and UNEXSO, could not be reversed or circumvented by the Government’s VAT plans and regulations.

However, private sector fears were further stoked by a Bahamas Institute of Chartered Accountants (BICA) seminar last week, at which the Government’s representative, Keith Worrall, said VAT would be levied on some ‘bonded fuel’ purchases.

Multiple sources who attended the seminar confirmed this was the impression given by Mr Worrall, and that passenger/executive vehicles used by GBPA licensees in their business would have to pay VAT on their ‘bonded fuel’ purchases.

While obvious commercial vehicles, such as delivery trucks and fork-lift trucks, would not have to pay VAT on their fuel purchases, business sources said this would require Freeport businesses to run separate fuel accounts for their vehicles.

“How do you tell which vehicle got which fuel,” one source, speaking on condition of anonymity, told Tribune Business.

“They’re trying to do a claw back under the guise of the Hawksbill Creek Agreement. If you go through the guidance notes, there’s an awful lot of claw back attempts.

“It’s so much so that each claw back seeks to circumvent each previous court ruling...... It’s a claw back of the Hawksbill Creek Agreement with respect to VAT. Each one of the claw backs seeks to regain lost ground.”

Carey Leonard, a Callenders & Co attorney who attended the BICA seminar, confirmed the ‘bonded fuel’ treatment impression given by the Government VAT representatives.

And he agreed that the ‘guidance notes’ on passenger vehicles appeared to be an effort to “go after the case” that his colleague, Mr Smith, won.

“It seems to me that they are going to try to claw back some of that,” Mr Leonard told Tribune Business, adding that this “flies in the face of the intent” of the Hawksbill Creek Agreement and supporting legislation.

Mr Smith, meanwhile, accused the Government of attempting to “undermine the Hawksbill Creek Agreement as the regulatory jurisprudence and guiding law” for Freeport, something he said had been confirmed by rulings ranging from the Supreme Court to the London-based Privy Council.

The well-known QC said the UNEXSO case had decided the issue of ‘fuel’ being used in a business’, and added: “It has already been dealt with, and it’s a crying shame that we have to keep reinventing the wheel in Freeport.

“A government cannot do indirectly what has been done directly. This is just going to create more uncertainty in the business environment in Freeport, and it is going to continue to stop the spirit and intent of the Hawksbill Creek Agreement from furthering prosperity in Freeport.”

Suggesting this showed that successive administrations had “no respect for the rule of law”, Mr Smith added: “Frankly, as a Freeport business licensee, it sickens me to see how unlawfully successive governments have behaved towards Freeport.

“If I didn’t have 40 years of investment in Freeport I would, frankly, leave. And if I left, 162 employees would lose their jobs.

“If they are not careful, people will pack up and leave, and Freeport will become a ghost town as it did in the 1960s and 1970s with the ‘Bend or Break’ speech.”