The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FREEPORT’S private sector yesterday hailed the Government for “delivering 20 years of tax regime certainty” with its plans to repeal the Christie administration’s controversial actions.

Mick Holding, the Grand Bahama Chamber of Commerce’s president, told Tribune Business that both existing and potential investors can “buy into” the ‘blanket’ 20-year renewal of the city’s expired ‘tax breaks’. He added that the impending repeal of the Grand Bahama (Port Area) Investment Incentives Act should end “the state of limbo” and “confusion and uncertainty”, which had frozen business investment/expansion even since those exemptions expired in early August 2015.

Mr Holding was reacting after the Government yesterday tabled legislation in the House of Assembly to replace that Act. Whereas the Christie administration only granted a ‘blanket’ 20-year ‘tax break’ renewal to the Grand Bahama Port Authority (GBPA) and Hutchison Whampoa, its successor has extended such treatment to all 3,500 Port area licensees and homeowners.

The Grand Bahama (Port Area) Extension of Tax Exemptions Bill also seeks to streamline bureaucracy and ‘red tape’ through the creation of a Port Area Investments Board, which will “approve and regulate” all foreign direct investment (FDI) coming into Freeport.

While welcoming the move as an effort to improve the ‘ease of doing business’, Mr Holding expressed surprise that the legislation called for the GB Chamber to nominate two of the new Board’s 10 members. He revealed that neither he, nor the GB Chamber, had been informed of that provision’s inclusion.

Still, Mr Holding said of the ‘blanket’ 20-year renewal: “This is a much better approach, and I believe it’s the right thing to do. It sounds as if it delivers exactly what we’ve been asking for.

“I understood from Kwasi Thompson at the weekend that it [the new Bill] was about to come out, and he said we won’t be disappointed, which I took to mean that the things the Chamber members and licensees were going to be looking for would be in this new Bill. It sounds like it’s been delivered.”

He added of the Bill’s potential impact: “I think it does two things. It gives another 20 years of certainty for existing businesses but, importantly now, in trying to attract new business to Grand Bahama they can have that same degree of certainty.

“They know what they’re buying into. Before, when we were in a state of limbo between the expiry and new Act, it was all confusion and uncertainty, which is not a good thing in business. There are a number of other uncertainties about, but to have certainty about the tax regime for 20 years has to be good for existing businesses and attracting new businesses to Grand Bahama.”

Mr Holding said Freeport’s private sector would likely react favourably to the tax regime certainty, and the Government will be hoping it unlocks job-creating investments and expansion that is needed more than ever given Grand Bahama’s economic circumstances.

The legislation tabled yesterday makes the 20-year ‘tax breaks’ renewal retroactive to May 4, 2016, effectively reducing its useful life to 19 years. It states that the renewal of real property tax, income and capital gains tax exemptions applies “to the Port Authority, its licensees and homeowners in the Port area”.

These three exemptions, which licensees enjoyed by right under the Hawksbill Creek Agreement, expired in early August 2015, and discussions over their fate ultimately led to the Christie administration’s new incentive legislation.

That Act, though, was viewed as especially unsatisfactory because it extended preferential treatment to the GBPA and Hutchison group entities, while discriminating against all the former’s licensees.

While Freeport’s two largest investors received an automatic 20-year extension, everyone else was required to apply to the Investments Board in Nassau for renewal of their ‘tax breaks’.

The major concerns associated with this process involved uncertainty over the length of time for which the three tax breaks would be renewed, and the fact this was left entirely to the discretion of the Investments Board and responsible minister.

There was also the fear that GBPA licensees not planning to expand their business were effectively ‘locked in’ to maintaining their existing employment levels for five years in return for the renewal of their

The application form attached to the Grand Bahama (Port Area) Investment Incentives Act 2016’s regulations divided 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 appeared innocuous, but when the application form was read with the Act, it effectively “locked in” GBPA licensees to maintaining employment levels for a five-year period regardless of whether there were 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’, appeared to come into play.

This allowed the minister responsible for investments to strip Freeport businesses, partially or in full, of their tax breaks, and even enabled them to demand payment of taxes that should have been paid if no concessions were granted.

The Act also enabled 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 demanded retroactive or ‘back’ taxes.

The Minnis administration promised to repeal the legislation upon taking office, and is now making good on that promise. K P Turnquest, the deputy prime minister, even branded the former government’s Act as “a job killer and no incentive at all” because of the uncertainty it introduced.

In reality, the only ‘tax break’ of consequence is real property tax, given that income and capital gains taxes are currently not levied in the Bahamas. And, given that Bahamian real estate holdings are not subject to this tax outside New Providence, locals in Freeport were unlikely to have been affected by its imposition.

The main players potentially impacted by real property tax were Grand Bahama’s industrial concerns, such as Buckeye (BORCO); Polymers International; Pharmachem; the Grand Bahama Shipyard; and the Grand Bahama Power Company.

They faced potential multi-million dollar liabilities, but the Christie administration’s rationale for the legislation was that it needed investment activity in return for the tax revenues foregone. It was seeking an end to foreign investors ‘buying and holding’ real estate, and doing nothing to improve their properties and establish businesses.

However, Freeport-based attorneys confirmed to Tribune Business that the real property tax uncertainty had also “frozen” the city’s second home market. They were even advising clients purchasing real estate to set aside monies in escrow in case they became liable to pay it.

Mr Holding, meanwhile, while expressing surprise at the GB Chamber’s role with the proposed Port Area Investments Board, backed its creation as a potential ‘one-stop shop’ and effort to streamline the approvals process.

“That’s a new one on me,” he replied, when informed about the Board by Tribune Business. “From the little you’ve said that sounds like a sensible plan and approach, but you’ve taken me completely by surprise. I didn’t know that [the Chamber’s ability to select two Board members] was on the table.”

The Port Area Investments Board is to be established jointly by the Government and GBPA “to approve and regulate” FDI coming into Freeport, and will do so “consistent with national economic policies and laws”.

No permits and approvals for Freeport-based FDI projects will be issued without its permission. Of the 10 member Board, five will be selected by the Prime Minister; three by the GBPA; and two by the GB Chamber to represent licensees.

Mr Holding said the Board’s creation held out the possibility that investments in Freeport no longer had to be referred to Nassau for approval. “We talk often, do we not, about the ease of doing business in the Bahamas,” he told Tribune Business.

“I think that one of the things that is a barrier to the ease of doing business in Freeport, in particular, is a lot of the major decisions go through the process in Freeport, and then have to come down to Nassau for endorsement.

“If we can eliminate that and combine it into one process, that has to be good. If we want to attract FDI, we have to streamline the process and make it as simple as possible. We in Freeport would support that; to make and take decisions that primarily affect us and our economy locally is a move in the right direction.”

The Bill also stipulates that the Government and GBPA will negotiate a supplemental Memorandum of Understanding (MoU) to the one agreed last year with the Christie administration in a bid “to address any unresolved matters of concern or legal dispute”.