By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Government was yesterday accused of “a completely illegal expansion of the VAT Department’s jurisdiction” over plans to implement new systems for monitoring ‘bonded’ fuel sales in Freeport.
Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that the Ministry of Finance’s move to implement what were described as “new administrative measures” for bonded fuel sales had no basis in law or the Hawksbill Creek Agreement.
Mr Smith branded the vague “measures”, which will be developed by the Ministry in partnership with Customs and the VAT Department, as another attempt by the Government to “chip away” at the Hawksbill Creek Agreement and numerous court rulings that had upheld it.
He warned that it would only cause “more chaos and confusion” for the Grand Bahama Port Authority’s (GBPA) 3,500 licensees, and further undermine confidence in the city’s private sector and its investment climate.
The Ministry, in a statement issued on Tuesday evening, confirmed that it had pulled back from plans - announced last week - to levy 7.5 per cent VAT on so-called ‘bonded’ fuel sales.
These are duty-free petroleum product sales made to GBPA licensee vehicles that are being operated for business purposes.
The Government ‘u-turn’ was sparked by an outcry from Freeport businesses, which argued that the move breached both the Hawksbill Creek Agreement and the VAT Act, given that the latter agreed that all goods sold duty-free under the city’s ‘bonded’ regime should not attract the 7.5 per cent levy.
However, as with most such government moves, there was a seeming ‘catch’ - the “new administrative procedures” that will allow the Ministry of Finance, Customs and the VAT Department to track bonded fuel sales.
These procedures were described as an “audit” in the Ministry’s release, and Mr Smith yesterday said it appeared to be “turning the presumption of innocence upside down” via a blanket approach that assumed all GBPA licensees were improperly purchasing ‘bonded’ fuel when using vehicles for non-business purposes.
Slamming this as “unconstitutional”, Mr Smith said of the so-called administrative measures: “This is another example of the Government disrespecting the Hawksbill Creek Agreement by attempting to impose conditions on licensee purchases of bonded fuel for lawful use.”
Pointing out that the Hawksbill Creek Agreement neither contained, nor referred to, what the Ministry of Finance was proposing, Mr Smith told Tribune Business: “The VAT Department, the Port and Customs have no lawful authority to create new administrative measures with the petroleum dealers for auditing etc.
“The only powers that exist are given to Customs in the Hawksbill Creek Agreement, not the VAT Department.
“This is a completely illegal expansion of VAT’s jurisdiction into the affairs of licensees, and the attempt to squeeze licensees and control them through the petroleum retailers will be resisted,” he added, alluding once again to the prospect of Judicial Review action.
“It is illegal, and once again central government, through its various agencies, is doing indirectly what it cannot do directly to breach the Hawksbill Creek Agreement.
The Government’s ‘new administrative measures’ have already caused consternation among GBPA licensees, which view the proposal as completely unnecessary.
One well-placed source, speaking to Tribune Business on condition of anonymity, said a well-established process already existed to monitor ‘bonded’ fuel sales and ensure these were only made to GBPA licensees’ vehicles that were being used for business purposes.
They explained that a ‘purchase order’ was made every time fuel was sold ‘bonded’ to a GBPA licensee, listing the amount and value purchased; the vehicle’s licence plate number; and the licensee owner’s bond number.
All this information, the source said, was handed over to Customs by the 15th of the following month by BISX-listed FOCOL Holdings, which is the monopoly fuel wholesaler/distributor in Freeport.
The company also owns the majority of the city’s gas stations, and the relevant ‘bonded’ fuel sales information is also supplemented by the independent retailers.
With Customs already possessing the information the Ministry of Finance and its agencies are seeking, the frustrated source asked: “Perhaps the Ministry of Finance should talk to their own people and ask them why they are duplicating and trying to reinvent the bloody wheel.”
The Government appears to be operating on a hunch, or suspicion, that Freeport’s ‘bonded’ fuel regime is being widely abused by GBPA licensees, who also make such purchases when the company’s vehicles are being employed for personal use.
However, it has no proof whether such abuse exists, or the extent of it, hence its desire to uncover the unknown by vaguely-defined, non-detailed ‘auditing’ procedures.
The source said the Government’s strategy could be understood by reading the ‘Guide to the Hawksbill Creek Agreement’, co-written by Customs and the GBPA, which deals with the ‘bonding’ of vehicles and when they can be subject to this treatment.
They explained that the Government, as reported by this newspaper earlier this week, is trying to differentiate between business-specific autos, such as delivery trucks and heavy goods vehicles, and passenger-type cars owned by GBPA licensees that are used by their top executives.
The theory is that the latter can easily be used for non-business purposes, so the Government wants them to remain in the ‘company parking lot at night’.
However, the source said the flaw in the Ministry of Finance’s plans is that the Guide has no basis in law. And the Government’s/Customs’ attempts to rely upon it in the past have been defeated every time by Mr Smith.
The QC previously won a Supreme Court ruling upholding Freeport’s ‘bonded vehicle’ regime on behalf of Callenders, and he yesterday said the ability to decide which autos could be bought, imported and used ‘bonded’ lay with the GBPA - not Customs or the Government - under the Hawksbill Creek Agreement.
“I will make sure that the VAT Department and Customs are sued if they breach the licensees’ rights under the Hawksbill Creek Agreement,” Mr Smith thundered yesterday.
“It is absurd for the Government to attempt to audit me driving from my home to my office a licensee in the conduct of my business, and whatever bonded fuel I use, as opposed to me driving to a pharmacy to pick up prescriptions on the way home using bonded fuel.
“The absurdity of this is simply going to create more disruption, more chaos and more confusion, and become more problematic for businesses in Freeport.”
Mr Smith continued: “This is unbelievably tiresome for licensees to have central government continue to chip away at what should be an easy place to do business.
“Freeport has become the most difficult place in the Bahamas to conduct business. I beg the Government to stop playing games and make commerce improve for licensees in Freeport.
“If they want to end the Hawksbill Creek Agreement, then make the payment of damages to all licensees and bring it to an end, but stop playing these games.”
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