The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Private sector leaders will this morning seek “clarity” from the Government over the new Freeport ‘tax break’ application process, amid fears businesses will lose incentives - and incur penalties - if they break a five-year employment ‘lock in’.

Mick Holding, the Grand Bahama Chamber of Commerce’s president, confirmed to Tribune Business he is due to meet Government and Port Authority (GBPA) officials today in a bid to obtain answers to business community concerns.

Expressing hope that the Chamber will subsequently be able to provide the necessary “guidance” to its members, Mr Holding said he held the “expectation” that the March 6 deadline by which businesses must apply to receive key tax breaks will be pushed back.

Suggesting that it was impossible for any GBPA licensee planning expansions to submit the information requested in the seven working days that remain, Mr Holding said how long the tax exemptions will be granted for was another issue requiring clarification.

However, he acknowledged to Tribune Business that “the main concern” of the GBPA’s 3,500 licensees was whether those companies no planning to expand are being ‘locked in’ to maintaining existing employment levels for five years - as revealed by Tribune Business on Thursday.

The application form attached to the Grand Bahama (Port Area) Investment Incentives Act 2016’s regulations divides GBPA licensees into two categories: Those planning a business expansion within the next 12 months, and those who “expect to operate as a going concern and maintain current staffing levels for at least the next five years”.

The latter category appears innocuous, but when the application form is read with the Act, it effectively “locks in” GBPA licensees to maintaining employment levels for a five-year period regardless of whether there are further market or economic downturns outside their control.

Should a licensee be forced to downsize in those five years to survive, the Act’s section six, ‘Failure to fulfil obligations’, would appear to come into play.

This allows the Minister for Investments to strip Freeport businesses, partially or in full, of their tax breaks, and even enables them to demand payment of taxes that should have been paid if no concessions were granted.

The Act enables the Minister to “reduce or revoke in full” the tax breaks granted, and even “demand payment in respect of any money that would have been payable had no concessions under the Act been conferred”. In effect, it demands retroactive or ‘back’ taxes.

When Tribune Business raised the issue with Mr Holding yesterday, he replied: “What you’ve just said embodies the main concern of members, and this is why we need certain clarification of this.

“One of the stumbling blocks to business growth and expansion is uncertainty.”

The Government may view the maintenance of existing employment levels as a reasonable ‘trade-off’ in return for granting a business the real property, capital gains and income tax ‘breaks’ dealt with under the Act.

However, this goes completely against how the private sector works in a capitalist economy, and is likely to be viewed by some observers as the Government pushing towards a socialist state, with business owners exposed to ‘retroactive taxes’ should they elect to close their enterprises completely.

Several Freeport private sector sources, speaking on condition of anonymity, warned that any five-year employment ‘lock in’ would drive away any new foreign direct investment (FDI) while also acting as a disincentive to Bahamians to start their own businesses.

“Who the hell’s going to come here?” one source said of the consequences. “We don’t know who’s supposed to apply and who isn’t. It’s unbelievable.

“It’s ridiculous, ridiculous. They’re really trying to kill us. I’ve never seen anything like this. We’re screwed. The whole place must be insane, and the Port Authority doesn’t give two hoots because they’ve got their 20-year exemption.’

Mr Holding said he had already received a briefing from the Hawksbill Creek Review Committee, and had a prior meeting with the Ministry of Grand Bahama and GBPA, “to get clarification on certain points and issues around the approvals process, and what it means to businesses in Freeport”.

Implying that there remained outstanding issues that he hopes to resolve this morning, Mr Holding added: “It’s caused a certain amount of disquiet among the business community.

“A lot of the disquiet is coming about, and often happens, when people assume things and jump to conclusions that are often the wrong conclusions.”

Despite not having gazzetted the accompanying regulations to give them effect, the Government has moved to implement the Act by demanding that the GBPA’s 3,500 licensees apply to it for the granting of renewed tax breaks.

A newspaper advertisement on February 20 called on licensees to obtain, complete and submit an application form for continuation of the real property tax, income and capital gains tax exemptions that expired on May 4, 2016, last year.

They were given just two weeks until March 6, 2017, to accomplish this, the date having been chosen because it corresponds to the 10-month application deadline set out in the Act.

However, given the nature of the information demanded, Mr Holdings said it would only be “sensible” for the Government to push back the March 6 deadline to give GBPA licensees - especially those planning to expand their business within the next 12 months - more time.

“That’s my expectation and it’s the sensible thing to do,” he told Tribune Business. “A lot of the comments being made in the business community, and dare I say fears they’re expressing, can be allayed by effective communication.

“What we need is to extend the deadline and, hopefully, it will be confirmed tomorrow. That extension will enable two things to happen. One, better communication with the business community on what this is about, and what we need to do for us to do it properly, particularly for those companies thinking about expansion,” the Chamber president continued.

“It’s not something you can put together in five minutes. It takes time, particularly for the large industrial companies with parents outside the Bahamas, to go back for approval.

“If you want the business community in Freeport to benefit from this, you have to allow people time to do it properly, and it not be a rushed application.”

Mr Holding said some of the documents, such as “evidence of Value-Added Tax compliance”, were outside the control of GBPA licensees and would take time to obtain.

He added that he had a vision of several thousand Freeport businesses besieging the Inland Revenue Department at the same time for a Tax Compliance Certificate, overwhelming the Government.

Mr Holding said other questions the private sector wanted answered were how long the real property tax, income and capital gains tax exemptions would last for once granted.

“If you’re going to do certain things, you’ve got to know you’re getting the concessions for a certain period of time,” he added.

The Act, though, gives the Investments Board and Minister complete discretion to determine the extent of the tax breaks granted to each GBPA individual licensee, and for how long, as they see fit.

They can also “stipulate conditions for inspection” to check that GBPA licensees are fulfilling the commitments they made on the ‘tax breaks’ application form.

Mr Holding said that following today’s meeting, the Grand Bahama Chamber’s Board would meet in a bid to develop “a position” on the new Freeport tax incentives regime that could be passed on to members.

“I hope we’ll be in a position to give some guidance and advise members to make the application for their benefit, and give assurances in most cases they will continue to enjoy these benefits; as much assurance as we can give them,” he told Tribune Business.