The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s House of Assembly leader yesterday pledged to launch a Public Accounts Committee (PAC) investigation into revelations that Baha Mar’s construction completion is “fully exempt” from Value-Added Tax (VAT).

Loretta Butler-Turner, who heads the PAC, said the VAT-related disclosures in an e-mail from the project’s main contractor, China Construction America (CCA), provided “a great springboard” for her to demand an inquiry when the House resumes on Monday.

“Oh boy, they’re going to have it on Monday,” Mrs Butler-Turner told Tribune Business. “This gives me a great springboard on Monday to ask for an investigation into this immediately.

“As head of the PAC, I’m going to call for an investigation. I’m compelled to on behalf of the Bahamian people.”

Mrs Butler-Turner was responding after a leaked e-mail, sent from CCA (Bahamas) commercial department to Baha Mar’s sub-contractors and suppliers, effectively revealed that the project’s completion is entirely ‘VAT free’.

The e-mail, headlined ‘Exemption of VAT’, said: “It’s agreed with the Government that the sub-contractors and suppliers of CCA Bahamas (CCA) shall be entitled to have the benefit of a full exemption from the payment of Value-Added Tax for works carried out on the Baha Mar project.”

It added that these companies, both Bahamian and foreign, would receive VAT ‘zero-rated’ treatment for Baha Mar purposes, and said they could recover any tax already paid.

“You are required not to charge the Value-Added Tax on your invoices for goods and/or services to CCA,” the e-mail told sub-contractors and suppliers.

“If you have paid VAT to the Government or your own sub-contractors and/or suppliers, please record these invoices as listed in the attached summary form and submit to CCA for the review and process of the Bahamas authority.”

Mrs Butler-Turner described the VAT exemption as “ludicrous” and “unbelievable”, although she conceded that previous Heads of Agreement with major foreign developers never needed to account for the tax, which was introduced on January 1, 2015.

However, she pointed to the fact that the Chinese were receiving a tax ‘waiver’ not being granted to Bahamian businesses and consumers, who were continuing to pay, administer and collect the Government’s major revenue earner on its behalf.

Setting aside the VAT issue, Mrs Butler-Turner then questioned whether the 10 per cent ‘transfer tax’ was being paid on the two sales of Baha Mar’s resort and property assets.

The Cable Beach-based development was first purchased out of receivership by Perfect Luck Holdings, a special purpose vehicle owned by Baha Mar’s secured creditor, China Export-Import Bank.

The bank is now selling Perfect Luck’s equity share capital to Baha Mar’s ultimate buyer, Chow Tai Fook Enterprises (CTFE), in what is said to be a $2 billion deal.

The 10 per cent ‘transfer tax’, split into 7.5 per cent VAT and 2.5 per cent Stamp Duty, would generate between $100-$200 million on both sales, if applied in full.

“Where are the monies from the sale of the hotel?” Mrs Butler-Turner asked. “Where is that? That is the question that needs to be asked, and what else do we intend to give away?

“If we had that $400 million, would we have been downgraded? We would have been in a very much stronger position, and that would have been a clear indication to S&P that things are moving in the right direction.”

K P Turnquest, the FNM’s deputy leader, yesterday backed Mrs Butler-Turner’s concerns, suggesting that the ‘two sales’ or transfers would have generated between $200-$400 million for the Public Treasury at a time when the Government needs every cent of revenue to boost its cash flow.

“This is particularly important given the fact we have been downgraded to ‘junk’,” Mr Turnquest told Tribune Business, “and the debt burden continues to increase at an alarming rate, while we’re still giving away the bank with no equity interest.

“They are giving up a significant figure in terms of the transfer of assets, both in VAT and Stamp Duty.”

Tribune Business understands that no 10 per cent ‘transfer tax’ was paid on the ‘sale’ to Perfect Luck Holdings, and it is unlikely that the full amount, at least, will be levied on the CTFE sale.

CTFE (Bahamas) president, Graeme Davis, previously declined to discuss any details of the Baha Mar sale, including the investment incentives, with Tribune Business, citing commercial confidentiality as its agreements with the Government and China Export-Import Bank were still being finalised.

However, there is precedent for this, as this newspaper’s contacts have suggested that Brookfield Asset Management received a huge discount, and possibly a 100 per cent waiver, on the $200-$300 million in Stamp Duty that was payable when it took over Atlantis from Kerzner International as part of the debt-for-equity swap.

Mr Turnquest, though, questioned whether the Government would have to extend Baha Mar’s ‘VAT exemption’ to Atlantis, given the resort’s ‘Most Favoured Nation’ status, which requires it to receive the same incentives as any other Bahamas-based investor.

Should this occur, Mr Turnquest asked whether this would be “economically fair to the Bahamian businessperson and consumer”, while also querying whether VAT exemptions would apply to Baha Mar’s operations.

He added: “The Bahamian people would be very concerned and interested to know how much have they invested in this project as a result of these tax concessions, and would love to hear from the Government of the Bahamas that they are the ones actually paying out those employees and creditors through the tax concessions.”