The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The payment of Value-Added Tax (VAT) on Baha Mar’s sale could just be “a cash flow timing issue” based on how the tax works, the Chamber of Commerce’s chairman said yesterday, suggesting it was currently impossible to evaluate the completion deal’s merits.

Gowon Bowe told Tribune Business that the VAT element of the 10 per cent ‘transfer tax’, which is normally payable when property or real estate is sold, is effectively a “deductible” that can be offset against future tax payments.

As a result, Mr Bowe said the VAT payable when Chow Tai Fook Enterprises (CTFE) purchases Baha Mar’s real estate could either be paid then or taken from future taxes generated by the resort/casino operations, depending on how the deal with the Government was structured.

The Chamber chairman’s analysis implies that Opposition politicians may be exaggerating by suggesting that between $200 million-$400 million in tax revenues on Baha Mar’s purchase are being foregone by the Christie administration.

He also warned that, with the Baha Mar construction completion agreement ‘sealed’ by the Supreme Court, and the Heads of Agreement between the Government and CTFE still not disclosed, it was impossible to determine whether the Christie administration had struck a good deal, or if it had given too much away in terms of tax incentives.

“Do we have sufficient information to evaluate what has been given at this point in time,” Mr Bowe asked, implying that the answer was ‘no’.

Turning to the clamour over whether the 10 per cent ‘transfer tax’ would be paid on the sale of Baha Mar’s real estate, he added: “In a VAT transaction, any time VAT is paid on the acquisition of a resort, it becomes an input credit offset against future taxes. It’s a deductible.

“In reality, the question really is: Has there been a VAT concession, or is this just a cash flow timing issue?”

Mr Bowe explained that, in theory, the Government either had the option of collecting the VAT element of the ‘transfer tax’ upfront, allowing CTFE to offset this payment against future tax collected, or wait and claim the payment from revenues generated by Baha Mar guests.

Whether the 10 per cent ‘transfer tax’, which is broken into 7.5 per cent VAT and 2.5 per cent Stamp Duty, will be payable on Baha Mar’s sale has been a recurring issue picked up on by Opposition politicians.

The latest was Democratic National Alliance (DNA) leader Branville McCartney, who told Tribune Business: “You’re looking at hundreds of millions of dollars that could have gone into the kitty for the Bahamas, especially in light of the recent downgrade and rising debt.

“We could reduce the debt significantly. This is hundreds of millions of dollars in the face of a downgrade. The question is: What is this government doing?”

Mr Bowe, meanwhile, said the Bahamas lacked a policy setting out the terms and conditions for what tax/investment incentives were granted to Bahamian and foreign developers, their value and benchmarks to measure performance.

He also called for a more scientific approach to analysing, and determining, whether the Bahamas and its taxpayers were receiving ‘value for money’ from investment incentives that were granted.

“There is no defined policy that speaks to economic, land and tax concessions to spur local and foreign development,” Mr Bowe told Tribune Business. “We should be clamouring for that to be in place. What are the benchmarks to evaluate a transaction?”

He added that the Bahamas needed “a set of criteria” to determine whether major investment projects led to the expected economic impact and employment for Bahamians, and if “the level of concessions and incentives granted were appropriate”.

Mr Bowe said this led into a cost/benefit analysis of such incentives, and whether the taxes foregone upfront were outweighed by the economic and job creation benefits, with the Government more than regaining its revenues later on.

“It should always be a zero sum game,” he explained. “We should not be giving away tax concessions today and in the future where we cannot demonstrate an economic benefit to the country and the Government’s coffers offset what was foregone.”