By NEIL HARTNELL
Tribune Business Editor
Opposition politicians yesterday argued that Baha Mar’s newly-released Heads of Agreement confirms “the Bahamian people are the ones paying for this deal”, and the $101.5 million creditor payout, via tax breaks granted to the project’s new owner.
K P Turnquest, the FNM’s deputy leader, told Tribune Business that the Christie administration’s agreement with Chow Tai Fook Enterprises (CTFE), signed on April 25, revealed “the true cost of this deal” for the taxpayer.
“First you have the indirect costs given up until 2019, and then the direct cost that’s involved in terms of contributing to the severance payments and causing this deal to happen,” he said of the tax breaks and incentives granted to CTFE.
“I can’t ever begrudge Bahamians being made whole, but we must be honest with the Bahamian when we are talking about who is paying for the severance payments and creditors. It’s the Bahamian people through the concessions granted. It may not be a direct payment from the Treasury, but it’s revenue given up.”
Mr Turnquest was backed by Branville McCartney, the Democratic National Alliance’s (DNA) leader, who said the tax breaks and investment incentives granted to CTFE had effectively financed the payments to former Baha Mar staff, contractors and other Bahamian creditors.
Arguing that the tax breaks granted to Baha Mar’s new owner were worth more than the collective $101.5 million collective payout to Bahamian creditors, Mr McCartney told Tribune Business: “In essence, we paid off the creditors.
“That Heads of Agreement tells us the Bahamian people paid off the creditors. The amount of tax breaks they got compared to what was paid out; what the country is not getting far exceeds what was paid out.”
The DNA leader described the Baha Mar Heads of Agreement with CTFE as “a complete giveaway”, and questioned whether it violated the ‘Most Favoured Nation’ treatment enjoyed by Atlantis, which also has to enjoy all incentives and tax breaks offered to any other resort.
Both men were responding after Tribune Business reported on Monday that the Heads of Agreement effectively showed the Christie administration had traded tax concessions for Baha Mar’s construction completion and payment to Bahamian creditors.
The two ‘asset transfers’ necessary to effect Baha Mar’s sale to CTFE are “exempt from all relevant taxes”, including VAT and Stamp Duty, with the $4.2 billion development’s construction completion also escaping the 7.5 per cent levy until end-2019.
This makes Baha Mar’s construction and furnishing VAT-free until 2020, a move unlikely to sit well with the many Bahamians and businesses who will still have to pay, collect and administer the tax on the Government’s behalf.
With Baha Mar’s real estate assets valued conservatively at between $1-$2 billion, the exemption from the 10 per cent ‘transfer tax’ - split into 7.5 per cent VAT, 2.5 per cent Stamp Duty - means that the Government is foregoing between $200-$400 million in revenues on the two ‘asset transfers’ alone.
However, VAT’s nature means the issue is not so simple. Gowon Bowe, the Bahamas Chamber of Commerce’s chairman, previously pointed out that the 7.5 per cent VAT element would be treated as a ‘business input cost’, and offset or netted off against future VAT payments generated when Baha Mar became operational.
This means the Government had the option of collecting its VAT money now or later, once the property became operational, and the Christie administration has clearly opted for later.
The Government will likely argue that taxes foregone upfront will be more than offset by the increased economic activity and employment flowing from Baha Mar’s completion and opening, with this also generating greater recurring revenues for the Treasury in years to come.
And, while the incentives may appear excessive, the Christie administration will also hold to its position that they are a valid ‘trade-off’ for inducing the China Export-Import Bank to compensate creditors and get Baha Mar open, rather than letting it sit there as a deteriorating ‘white elephant’.
Mr Turnquest, though, expressed disquiet that the Government had written-off $10.75 million in casino taxes owed by former Baha Mar developer, Sarkis Izmirlian, as a result of putting his corporate structure into liquidation.
Describing this as “real money” that would have assisted a cash-strapped Treasury struggling to service a $7 billion-plus national debt, Mr Turnquest said: “When you add it all up, it’s the Bahamian people paying for this deal.
“While the Government tries to make us feel the Chinese paid all this money, when you add the tax breaks and write-offs, the Bahamian people are invested heavily in this project.
“Revenues to the Treasury over the life of this deal are marginal at best. We’re giving up all the taxes; where are we making the money? When does the Treasury get to benefit from this transaction?” he continued.
“Again, it seems as if CTFE is getting this project for no cost. It’s all being reimbursed by the Bahamian people. Are they buying Baha Mar on credit? The Bahamian people ought not to be stuck with the bill for this thing.”
The Bahamian taxpayer was already heavily invested in Baha Mar under Mr Izmirlian, the Christie administration previously alleging that the former developer had obtained $1.2 billion worth of incentives and public land over the 21-year period to 2032.
A Tribune Business comparison of the Heads of Agreement granted to Mr Izmirlian in 2011 by the former Ingraham administration, and CTFE’s new agreement, shows that the two had been granted similar incentives and tax breaks, VAT excepted (see other article on Page 1B).
However, many are likely to question why Baha Mar has been given a VAT exemption on all construction and outfitting until 2020, given that its last resort property - Rosewood - is due to open by end-April 2018.
Mr Turnquest said this aspect, in particular, had placed Bahamians at “a disadvantage”, especially given annual fiscal deficits that have remained stubbornly above $300 million.
“It seems we have not learned the lessons of the past,” Mr Turnquest told Tribune Business.
“We continue to cater to large investors, as opposed to spending resources on SMEs and helping to build local industries and solutions. We continue to be at the mercy of large investors.”