By NEIL HARTNELL
Tribune Business Editor
The Government was yesterday urged to "marry health with economics" to maximise the "phenomenal gesture" of its $60m bid to safeguard up to 10,000 jobs through tax credits and deferrals.
Robert Myers, the Organisation for Responsible Governance's (ORG) principal, told Tribune Business that the complete lockdown imposed upon many businesses meant they would enjoy little benefit from the initiative unveiled yesterday by K Peter Turnquest, deputy prime minister.
While acknowledging that the Government was showing "a real willingness to help companies and employees stay alive" amid the COVID-19 pandemic, Mr Myers argued that the combination of tax deferrals and credits "doesn't make sense" unless his businesses were allowed to operate at closer to 50-60 percent of their revenue-earning capacity.
And he added that the deferral element, which could amount to a maximum of $300,000 for qualifying businesses, still represented a "significant liability" that companies ultimately will have to pay back to the Government since it has only been postponed not forgiven.
Mr Myers said such a liability was especially concerning given the uncertainty over how long, and deep, the COVID-19 pandemic and associated lockdown will be, coupled with the inability of many businesses to earn any revenue during this time.
The ORG chief was not alone in his questions over a government initiative targeted at medium-sized to large Bahamian enterprises. Mr Turnquest yesterday said it was intended to provide "payroll support", and incentivise qualifying companies to retain up to 10,000 Bahamian jobs rather than temporarily lay them off amid the pandemic.
He explained that the three-month initiative could provide qualifying firms with up to $600,000 split equally between a combination of tax credits and deferrals. Those companies with outstanding Business Licence fee payments and VAT receipts will be able to withhold payment and, in return, receive a maximum of $200,000 per month.
Some $100,000, or 50 percent, will come in the form of a non-reimbursable tax credit. And the other $100,000 will be "deferred" until January 2021, when it will have to be repaid in a series of 12 monthly instalments throughout the year.
To qualify, companies must employ a minimum 25 persons and commit to retaining 80 percent of staff that were present prior to the COVID-19 crisis. "The net effect of this initiative is that, for some businesses, the Government will be paying the salaries of half of their employees for the next three months and providing them with the cash flow to pay the remainder," Mr Turnquest said.
"The Government is budgeting some $60m in revenue foregone over the next three months to facilitate this initiative, of which $30m will be effectively provided by the Government to pay the full salaries of Bahamians over the period.
"The Ministry anticipates that some 200 medium and large-sized entities will take advantage of this initiative that will support the retention of some 10,000 jobs over the next three months." He added that full details of the initiative will be worked out over the coming week before the programme launches on April 8 (see other article on Page 1B).
However, Mr Myers was far from alone with his questions. Several companies queried whether they will qualify given that they have already paid their Business Licence fees for 2020, the deadline for which was today until the Government shifted it to April 15. And many will also have paid much of the VAT due to the Government with their March filings (for February collections).
Others pointed out that the COVID-19 lockdown means they will be earning zero revenues anyway, meaning that the Government will likely automatically owe them a VAT refund/credit following their next filing due to the 'input' payments they still have to make on fixed costs such as rent and utilities.
And some questioned why the Government had waited until now to announce such an initiative given that many medium-sized and large businesses, especially those in or connected to the tourism industry, have already shut down and handed the burden to the National Insurance Board (NIB) by temporarily laying-off staff
The Bahamas Chamber of Commerce and Employers Confederation (BCCEC) acknowledged such concerns last night, saying in a statement that the tax credit/deferral initiative would largely benefit those who have yet to pay their annual Business Licence fees.
Yet Marlon Johnson, the Ministry of Finance's acting financial secretary, said many companies had already paid these annual fees. The Chamber, though "encouraged" by the Government's efforts to expand the COVID-19 safety net to medium and large-sized businesses, said: "We eagerly await the full details of the tax credit and tax deferral employment programme.
"However, there are medium to large businesses that cannot generate - or are restricted from generating - revenue under the emergency orders, and hence the tax credit and tax deferral employee retention programme is of little benefit to them.
"Additionally, given the fact that Business Licence fees are due the end of March, many businesses have already paid. While we are not a proponent of opening up businesses to the peril of the general public, we understand that these businesses need a solution," it added.
"We further acknowledge that the Government is looking for ways to assist the business community amidst the country’s current fiscal constraints. However, we look forward to working with the Government to develop a strategy that will help these businesses retain their staff compliment as well."
Mr Myers, too, acknowledged that the Government's heart was in the right place as he described the tax credit/deferral combination as "a phenomenal gesture". He added: "I think they're showing a real willingness to be partners and involved in helping companies stay alive".
However, with his landscape maintenance company only allowed to function at weekends, Mr Myers said the Government's initiative was effectively requiring him to retain 80 percent of his staff on just 20 percent of normal revenues, while also adopting a potential $300,000 liability via the tax deferral.
"The reality is the tax credit is great, but the deferral is a liability," he said, arguing that it represented too much risk amid the COVID-19 uncertainty. "It's certainly better than nothing, and I'm not looking a gift horse in the mouth. It's a phenomenal gesture but we've got to get some revenue. The problem right now is absolutely no one is working. We don't have the capacity to do any work. We're completely shut down.
"We'll be able to do one-fifth of the volume and revenue we do in normal times. That's not enough for us to get around the contracts we have. We cannot shove five days of work into two days. The criteria we have to meet, keeping 80 percent of staff on with 20 percent of work, how does that make sense when you've still got to pay that $300,000 deferral back?
"The big unknown here is we don't know how long this is going to go on for, so incurring $300,000 in deferrals is a big liability to take, especially when you don't know how quickly the economy is going to rebound," Mr Myers continued.
"Three hundred thousand dollars is a tremendous liability when running at 20 percent capacity. Get to 50-60 percent and it starts to make sense. You've got some revenue coming in and can function."
The ORG chief said businesses still have multiple fixed costs and overheads they have to meet besides payroll, such as rent, utilities and bank debt payments, all of which are not covered by the Government's initiative.
"We are going to pay our people for a period we don't know how long, four to six weeks, at some percentage of their pay," he added, arguing that the tax credit/deferral initiative would work far better if the Government opened the economy in a controlled, gradual manner to allow businesses to earn some revenue without compromising the COVID-19 health battle.
"We have to temper this, and balance this, between keeping the disease at a manageable level and opening certain sectors of the economy to allow the Government and private sector to earn revenue," Mr Myers told Tribune Business.
"I understand health is the predominant issue, and the Government is doing very well on that part, but this disease [COVID-19] is not going away and we're not going to come up with a vaccine this year. We're going to have to somehow live with it, change our protocols on the private sector to focus on a higher degree of safety to combat the threat, and hopefully we will be allowed to open up a bit.
"I cannot tell you we can sustain a complete shutdown for a month. The hope was we'd be back in two to three weeks. That's not looking so good. We haven't run the numbers to take us past six weeks. This looks like it might go on for eight, 10, 12 weeks."
Mark A. Turnquest, a small business consultant, backed Mr Myers' calls for a "strategic opening" of the Bahamian economy once the current lockdown extension expires on April 8. While his medium-sized and large clients were "surprised" at the level of support offered by the deputy prime minister they, too, suggested the tax credit/deferral initiative would only work if they can earn revenue.
"You can't completely close down the economy and expose employers to the liability of an employer retention programme," he said, adding that many companies have already "given up" on April. "They need to have a strategic plan that marries health with economics. The two cannot work alone. They cannot close everything down. That makes no sense."