The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Bahama Chamber of Commerce’s president says he feels “more comfortable” with Freeport’s new ‘tax breaks’ regime following Friday’s meeting with the Government, although key private sector questions remain unanswered.

Mick Holding told Tribune Business that “we made progress” in clarifying the uncertainty and confusion that resulted over the Government’s demand that the Grand Bahama Port Authority’s (GBPA) 3,500 licensees apply for renewal of key investment incentives by March 6.

However, he confirmed that the private sector’s two key issues - how long the tax exemptions will be granted for, and whether non-expanding businesses will incur penalties if they break a five-year ‘lock in’ to maintain existing staffing levels - remain “open”.

Mr Holding said the Chamber and wider business community had been asked to provide their “input” and guidance on both points, ahead of further discussions that are supposed to take place this week.

“I think it’s fair to say that we made progress, and those questions that we didn’t get answered are still open,” the GB Chamber president said of Friday’s meeting. “There was no negativity, and it was all positive stuff. It was in the spirit of working together.

“Our points were well received. Some answers were received, some they [the Government] wanted to think about, and on others they asked us to give our thoughts in writing.”

Mr Holding declined to go into detail on the answers that the business community did obtain on Friday, although Tribune Business understands that the Government is expected to push back the March 6 application deadline.

It is unclear how far it will be rolled back, but Mr Holding said Dr Michael Darville, minister for Grand Bahama, was supposed to issue a formal media statement on the way forward today.

However, Friday’s meeting did not answer the “main concern” over whether GBPA licensees will be stripped of their tax breaks, and forced to pay retroactive ‘back’ taxes, if they break a seeming commitment to maintaining existing workforce levels for five years.

Nor did it provide an answer on how long real property tax, capital gains and income tax exemptions will last for, with the duration and extent of such ‘breaks’ seemingly at the discretion of the Investments Board and the minister responsible for investments.

“That is probably the two remaining questions,” Mr Holding replied, when Tribune Business raised the issues. “Our points were heard, and they’ve asked for our input.”

He added that there was “no definitive answer” on the ‘tax breaks’ duration, adding: “That is one of the points that we’ve been asked for opinion and comments on.”

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.

The Act also 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, with expanding businesses required to undertake regular reporting.

Mr Holding, though, expressed confidence that the Freeport private sector would obtain the resolution it was seeking, despite its main concerns still being ‘open’.

“I’m feeling more comfortable about the whole thing,” he told Tribune Business, “and if we make the same degree of progress at the next meeting, I think we’ll be there. I’m quietly confident that we will get a satisfactory conclusion to these points.”

Mr Holding said last week’s meeting was attended by 35 persons, including officials from the Ministry of Grand Bahama, the full Hawksbill Creek Review Committee membership, and representatives from the Attorney General’s Office.

“They did gather the people who would be able to field the questions, which was positive,” he added.

A date and time has yet to be set for this week’s planned meeting, but Mr Holding added: “At the moment we’re at the table and on the inside, which is positive.”

Others, though, have been more strident in their criticism of the Grand Bahama (Port Area) Investment Incentives Act 2016, and its accompanying regulations and application form, warning that they further increase the costs and ‘red tape’ facing local and foreign investors, and will ultimately drive investment away.

Carey Leonard, the Callenders & Co attorney, told Tribune Business. “The only thing I can say is I’ve never seen a disincentive quite like it.

“The way this application form reads is that if you can’t maintain employment levels, the Government is entitled to demand its money back.”

He added of the application form: “I think it was hurried, and I don’t think it was thought through. It’s certainly not going to make Grand Bahama any more attractive; it makes Grand Bahama less attractive than anywhere else.”

Mr Leonard pointed out that nowhere else in its investment incentive legislation did the Government, via its Heads of Agreements, the Hotels Encouragement Act and others, require investors to ‘pay back’ received tax breaks if they failed to live up to their obligation.

Another Freeport attorney, speaking on condition of anonymity, said: “The more look at this Incentives Act, the more confused I am.

“Everyone up here doesn’t know what to do. It looks like you’ve got to apply in a short timeframe, and businesses will have difficulty with this five-year commitment to keep your employees.”

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.

Given the Bahamas’ fiscal predicament, and a long-held belief that it gave away too much under the Hawksbill Creek Agreement, the Government’s now wants GBPA licensees to apply to it for their investment incentives, rather than be given the previous blanket exemption.

It feels too many previously pocketed the savings, and then ‘sat’ on their land and other assets, rather than undertake job-creating expansions and investments.

The Christie administration also believes the Treasury spends more in Freeport than it earns from the city, despite providing no conclusive evidence yet to support this, further increasing the need to get the necessary ‘value for money’ from the tax breaks on offer.