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50 Jobs Go As Web Shops Shut Own After Tax Hike Approved

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Asure Win web shop yesterday blamed the budget’s tax hikes for the closure of 11 sites, and termination of 50 staff, by the end of June amid warnings the sector is not “hyperprofitable”.

The domestic gaming operator, in a statement issued yesterday, said the 82 percent increase in its tax rate had forced it to take “a sobering review” of its operations to eliminate locations that are either marginal or “underperforming”.

Asure Win added that it had yesterday informed the Gaming Board, the industry regulator, of its “intention to close 11 locations nationwide at the end of June” as its increased tax burden forces it to “make some fundamental business decisions concerning the future sustainability of our operations”.

Pointing out that the closures’ impact will extend beyond its staff, the web shop chain added: “It is anticipated that these closures will result in the termination of approximately 50 employees, as well as the termination of property leases which facilitate these locations.

“The domestic gaming industry is a competitive market with high operating costs. In some instances, these locations identified were already underperforming. With the proposed tax increases in the 2018-2019 budget, a sobering review of our operational costs and structure led us to take this preemptive action.”

Asure Win warned that further closures and job losses may follow depending on a review of its business by unnamed “external auditors”, who will conduct an analysis of the increased taxation’s likely impact on its model.

“Once those assessments have been completed, the results will dictate any further action,” the web shop warned.

Asure Win’s move is likely to be seized upon by the wider domestic gaming industry and the government’s political opponents that the sector’s worst fears in relation to the budget tax hikes are already coming true within 24 hours of the 2018-2019 budget’s passage.

A consultant’s report previously commissioned by the Bahamas Gaming Operators Association (BGOA), the industry body, previously forecast that around 2,000 jobs and 192 web shop locations would be lost if the Minnis administration went through with tax hikes it branded as “expropriation” and an attempt to seize control of the sector under the guise of taxation.

Should that forecast come true, the web shop industry will lose around three-quarters of its jobs and locations based on BGOA figures. Gershan Major, the Association’s chief executive, yesterday said each of the seven licensed operators will be forced to make hard decisions concerning their business models as a result of the tax hike.

“Each licensee will have to look at their own operations and make some fundamental business decisions concerning the future sustainability of their individual operations as a result of the proposed tax increase,” he told Tribune Business, parroting Asure Win’s line.

Dionisio D’Aguilar, minister of tourism and aviation, did not return Tribune Business’s calls and messages seeking comment before press deadline last night. However, he is likely to argue that the Asure Win closures were inevitable even before the Budget’s tax increases, as technology and competition were already driving industry consolidation.

“There are three of the seven gaming houses that are either too small or have been increasingly losing market share over the past three years that, unless something dramatic occurs, I expect them to begin to close locations,” Mr D’Aguilar said in his Budget communication last week, although he did not name them.

“So, when it happens, Mr Speaker, I do not want the people to cry shame on the Government. With the advent of technology and the building of bigger and more splendid locations, the smaller players in the market are slowly losing market share.

“Mr Speaker, I expect that, in a few years, the number of locations will be significantly less than they are now as the number houses move more of their business online. Players will be able to sit at home, log on, transfer cash from their bank account into their gaming accounts, game and transfer money back from their gaming account into their bank account. Remember that just four to five years ago there were 635 locations, and now there are 363. That downward trend is expected to continue.”

Mr D’Aguilar suggested that the seven licensed web shop chains, earning a collective $50 million in annual profits, have deep enough pockets to withstand the tax increase. And the divisive issue of web shop gaming is likely to be highlighted by the Government’s supporters, and industry’s opponents, arguing that the Asure closures are nothing more than ‘good riddance’.

But the web shop industry’s consultants, Christiansen Capital Advisors, emphatically rejected as untrue perceptions that the Bahamian gaming industry is massively profitable despite an earnings before interest, depreciation, taxation and amortisation (EBITDA) margin of 26 per cent.

The consultancy, which has focused on gaming and wagering in 50 different markets, said found in a June 11, 2018 study that Bahamian web shops paid out 59 cents of every $1 dollar earned in staff payroll, marketing and operational expenses costs. The remainder was taken up by existing government taxes, fees and charitable contributions.

“There are two misconceptions regarding gambling businesses,” the Christiansen study, commissioned by the BGOA, said. “The first is that they are hyperprofitable compared to other businesses and can shoulder any tax imposed on them. The second is that demand for gambling is price inelastic. Neither is supported by evidence or the academic research.

“The bulk of gaming revenues are used to pay the salaries of Bahamian workers and support the profitable operation of other Bahamian businesses. Another significant portion goes to government in the form of taxes and fees, and for charitable causes.

“Gambling operators earn approximately 26 cents of every dollar, which is a respectable margin, but not extraordinary, and a world away from hyperprofitability.”

The report also warned that the likely first reaction of Bahamian web shop operators to any tax increases would be to cut costs through closing marginal or unprofitable locations, resulting in significant job losses.

“The combined impact of declining revenues and a higher tax rate will undoubtedly lead to downsizing and the closing of marginally performing locations,” the Christiansen study warned.

“In a first quarter 2018 performance review, the largest operator of gaming houses, Island Luck, identified 14 marginal performing locations and 26 marginally performing franchisees representing estimated gross gaming revenue of approximately $37.3 million, or 35 per cent of gross gaming revenues.

“If these new tax rates go into effect, these identified locations will almost certainly be forced to close, and as this review was conducted before these new taxes were proposed, there could be more locations forced to close as well,” Christiansen added.

“Island Luck had 54 store locations and 62 franchisees in 2017. Thus, these marginal operations constitute approximately 26 per cent of Island Luck’s stores, and 48 per cent of its franchisees.

“If we assume that other operators on the island have a similar ratio of poor performing locations and franchisees, that means that these new taxes will likely lead to the loss of 69 stores and 711 employees at 10.3 employees per store, and $13.5 million in wages and indirect employment of 114 indirect jobs and between $2.1 million in wages.”

Pierre Dupuch, the former Cabinet minister and MP, yesterday expressed concern that the Government was seemingly “targeting” the web shop industry for taxation - a move that set a dangerous precedent.

“The amount of money the institution makes is irrelevant, so long as it is legal. So to pick out any institution which it licenses to ‘stick it to them’ is wrong and leads to instability,” he warned in a statement.

“It sets a serious precedent. If you make money, and the Government decides to single you out to tax you, it is unacceptable. It may look good to some but it sets a serious and dangerous precedent. Every time the Government passes a law a precedent is created.”

Mr Dupuch also hit out at the taxation for being discriminatory, adding: “What the precedent says is that anybody who the Government perceives to be rich can be selected. They didn’t say the gambling industry because that would include the foreign-owned gambling casinos. Instead, they singled out Bahamian-owned gambling operations.

“Isn’t that interesting? To the foreign-owned gambling operations they say ‘yes sir, boss’, and to the locally owned gambling operations they say ‘let’s stick it to them’. If they can do it to gambling they can do it to the grocery store or anybody else. In an already-fragile economy this is a scary proposition.

“For example, if an investor sees an opportunity to invest under a certain tax regime in the Bahamas, and invests accordingly based on the tax regime, only to find that the Government changes it midstream, the investor could lose their investment and therefore would not invest in new businesses. I know of what I speak. It happened to me. Uncertainty, is the biggest problem to get Bahamians to invest. We make all kinds of concessions to foreign institutions, but no concessions to Bahamians.”

Comments

Dawes 3 months, 1 week ago

They are just using the new tax laws as the reason for closing these. They were probably not profitable and now they are able to close without people saying they are going to have issues paying out peoples winnings. If these areas were profitable, they would have seen out the first few months to work out if they could make it or not.

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TalRussell 3 months, 1 week ago

Again, the Tribune leaves readers guessing being they're forever hostile to never mention names Numbers Operators, unless they just happen be Comrades Craig or Sebas.

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Well_mudda_take_sic 3 months, 1 week ago

Pierre Dupuch must have one or more of his family members with skin in the spinning numbers game. He conveniently makes no mention of the fact that alcohol and tobacco products are effectively taxed at rates which greatly exceed the sin tax rates on the proceeds of crime generated by the web shops operated by the low-life racketeering thugs like Sebas Bastian and Craig Flowers.

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DonAnthony 3 months, 1 week ago

Sorry to hear about the loss of jobs, but glad to hear more webshops locations are closing. They are a non- productive blight on our society. Hopefully most will close on Long Island, they have been bleeding this island dry.

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realfreethinker 3 months, 1 week ago

Here we go. The blame game. These people are just sleazy. Just an excuse to do what they knew would have to happen. Their problem is not taxes,it's over saturation of number houses

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B_I_D___ 3 months, 1 week ago

They mussy be doing it wrong...if Flowers brings in over 100M a year...I call that a bit hyper profitable...

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joeblow 3 months, 1 week ago

The gov't better not down down to this blatant attempt to pressure it. Instead it must start deporting those working illegally in this country to create opportunities for those who may lose their jobs because of web shop owners pettiness!

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bahamas12345 3 months, 1 week ago

To bad for the 50 workers, the numbers boys wont lose anything,. Everything is online anyway so they will just make more as they wont have to pay anyone.

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John 3 months, 1 week ago

The people also didn’t want casinos and gambling in the 1960’s but their word did not matter. The casinos came and reaped huge profits over the decades and exported most of their profits. Now because a couple Lil colored boys learned how to shake the kitty, everyone thinks ‘das too much money for dem to be making.’ So prove you believe in what you’re doing and apply the same sliding scale taxation to the casinos and see how mopack up and leave, even before the ink dries on your ‘tax to lill’ Legislation. Even if you had proposed to increase taxes gradually over a given period. So how much longer will this dual economy go on? One set of rules and taxation for Bahamians and a less set of rules and taxation for foreigners? And how long will the National Debt continue to climb while taxes continue to increase and the only explanation you can give is ‘da administration before is hoodwinked, bamboozled and had y’all!’ This better be the people’s time this time. Because of its size and the strength in numbers, this FNM Government is getting its way. It is getting everything it wants. And over the next few months it better be Jobs,kids and more jobs! No party will will win an election with the level of taxes and hardship presently in this country.

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Aegeaon 3 months ago

Thing is, the matter of the casinos that came to existence is because they consulted the government before making any further moves. On taxation, there should have been annual investigations and the owners disclosing the amounts of money.

But the webshops boldly messed themselves up by operating illegally before thinking first.

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John 3 months ago

Show hows much your knowledge is lacking.. The numbers boys also wanted to be licensed since then. They were never even considered seriously until Ingraham used them to finance his campaign, then dissed them.

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Chucky 3 months ago

id say until our powerful and rich elite start investing , we need to do whatever it takes to bring and keep the foreigners.
You don't think the big boys here could have funded as much of Bahamar as Izzy. Of course , we don't have anyone with big time vision like Izzy or Sol

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licks2 3 months, 1 week ago

Island luck has 64 franchisees? Where. . .how. . .in what country?? Are those closed down shops any of IL sub-lets? IL owners have always refused to play by any rules but their own self interests. . .it seems!! I find it strange that the report emphasizes that "after salaries, taxes and all other related costs they only make around 50 million in profit!! Are we that dumb or are they playing a game on us. . .twice? CAPITAL GAINS TAX IS ON GROSS OR NET? One of you financial experst around here please help me to understand this. . .please!

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John 3 months, 1 week ago

tax to kill legislation. And over the next few months it better bi Jobs, jobs and even more jobs, and less and less taxes. Donald Trump is being forced to relax his ‘no tolerance ‘ immigration policy because there is 1/2 million excess jobs in the US and the number is expected to grow. Don’t wait until Bahamians start to leave in droves to The US before you decide to fix the country. Because many don’t come back. And many Haitians and other immigrants waiting at the boarder.

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OMG 3 months ago

Does anybody really think that the school supplies , bags, books and free chicken that these Web shop operators give out are done for any other reason than to improve the public perception of their operation when in fact many families are going into debt to make flowers and his cronies rich.

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TalRussell 3 months ago

Ma Comrade, I'd wager that unlike the School Lunch Vendors, who go unpaid under the PLP and now Imperial red shirts - the Numbers Man's does pay on time their suppliers school supplies bags, books and free chicken... so fine me whatever weapon they want use as long as school children's win!

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proudloudandfnm 3 months ago

He admits they were not performing yet blames the closure on taxes.

Nothing funnier than a dumb lie..

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Socrates 3 months ago

they say the locations identified were already underperforming. in other words, they either weren't profitable or weren't profitable enough. Either way, they would have gone under anyway. Listen, John S George gone, Mauras gone, Cafe Johnny Canoe gone, Eastern Airlines gone, Princess hotel gone, etc. Such is life.. no need to make noise about this, jobs come and jobs go.

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birdiestrachan 3 months ago

Mr: Dupuch is speaking truth. He also said after the election that some of the PLP members of the house were good representatives. some continue to say and believe that the PLP whom ever they may be,, stole money. If it were true the FNM would have paraded them in hand cuffs just for the Fun they have no evidence to support their lies.

some FNM's work for the Numbers business. like wishey, washy Francis one can not get a straight answer out of him even if it were to save his life.

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DWW 3 months ago

why has no one ever considered that maybe it isn't the elected one who teifin, but maybe its the lifelong 'employees'? which would explain why no one is ever caught or prosecuted.

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DDK 3 months ago

11 down 181 to go! Trust the employees will find some sort of DECENT employment.

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John 3 months ago

All Sebas dem needs to do is open 12 laundromats and sell their washers and dryers for 25cents to 50 cents less than Super Wash. Sibsidize charters to run on every route that that other clown has flights and sit back for a few months and let the chickens come home to roost. Sebas already in the gas station business so make da move still.

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Well_mudda_take_sic 3 months ago

And all the Minnis-led FNM government needs to do, consistent with the wishes of the vast majority of voters, is pull all of the 'fake' licenses now held by Sebas's various criminal enterprises involved in money-laundering and other illegal activities, and then ensure he is completely cut-off from (1) all banking entities domiciled in our country (including BoB), (2) all clients' accounts maintained by law firms and their affiliated entities, and (3) all other regulated electronic money transfer facilities. With our new all encompassing financial regulations, there's really no underground for this low-life thug to run to anymore. And a national lottery will literally print loads of new money to help defray the costs of our currently under resourced education and healthcare systems.

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Dawes 3 months ago

Sounds good, as long as the web shops agree to allow anyone to open up webshops. Of course that won't happen as they don't want that, even though that is discrimination against every single Bahamian who is not already a web shop owner.

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Well_mudda_take_sic 3 months ago

Good for you Dawes! A well put excellent point on the discrimination inherent in the very corrupt process by which the 'select few' were granted essentially 'fake' licenses purporting to 'legalize' the racketeering money laundering and other illegal activities of their criminal empires against the wishes of the vast majority of Bahamians.

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Porcupine 3 months ago

I wonder if these locations that were already underperforming is an indication that they have sucked this country dry? Now, the government steps in, realizes they need more money and wants to suck even more money out of the economy. I am thinking we are in for a very difficult time here in The Bahamas. Much worse than we've already had it. Between the unthinking lazy FNM and the predatory web shop owners with their tentacles into our entire economy, I don't think the working person has a future here.

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DWW 3 months ago

Why such uproar? Numbers has been outside of hte VAT world so its about time they pay up some taxes. i know i've sure paid enough into hte treasury in my lifetime. I'm still fairly sure i don't get value for money.

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bogart 3 months ago

While I do not approve of web shops ...and voted no in the Referendum.....they have been licenced to operate as legal businesses. Call dem the worsest names...worsest everytinbg...talk dead bad......Fact is... they are legally businesses licensed by the previous Christie govt and current government. Noone......no administration.... should first licence any business to lawfully operate in this sovereign Bahamas nation.....and then place any onerous ...demanding....straining....set of conditions...or whatever....to ...then ..put dem out of business. Myself and the majority done voted no...so close dem...dont drag us back into this methodology of licensong dem and doing dem in...just enact the laws to close dem.

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