By NEIL HARTNELL
Tribune Business Editor
The Opposition last night accused the government of “sneaking” in a tax break for the rich by ordering Customs to eliminate the ten percent duty rate on so-called “pleasure vessels” outside the normal Budget process.
Kwasi Thompson, former Minister of State for Finance, challenged the legal and policy basis for the decision to implement the tax cut after it was seemingly omitted from the 2022-2023 Budget by mistake.
The revelation was contained in a June 23, 2022, memorandum sent to the Customs comptroller by financial secretary Simon Wilson, obtained and subsequently released by Mr Thompson and the Free National Movement.
“I am directed to advise that, as a result of the change to the rate of duty on pleasure craft vessels inadvertently being omitted from the Budget measure sheet, the Customs Department is now instructed to treat the following tariff heading as duty-free until the subsequent amendment to the Tariff Act is done during the next Budget exercise,” Mr Wilson wrote.
“All pleasure vessels that currently attract a ten percent rate of duty in Chapter 89 of the Tariff Act under Tariff Heading 8903 are now approved for a duty-free rate of duty.”
The change is effective immediately.” Michael Halkitis, minister of economic affairs, who was copied on the memorandum, could not be reached for comment and did not respond to a Tribune Business message before press time last night.
However, Mr Thompson, the east Grand Bahama MP, queried how the pleasure vessel tariff elimination can take effect legally since this requires Parliament to approve the necessary change to the Tariff Act - something that has not been done and, according to Mr Wilson’s note, will not happen for another 12 months given that both the House of Assembly and Senate have now passed the 2022-2023 Budget.
And the former state finance minister in the Minnis administration also called on the Government to justify the policy rationale for the tax break. Pleasure vessels refers to boats, yachts and other craft bought by Bahamians and residents abroad, and then brought back to this nation for personal use.
Given that some of these vessels at the high-end are sold for multi-million dollar sums, Mr Thompson asserted that the Davis administration’s move amounts to a tax break for “high income and wealthy individuals” who can afford to pay since the 10 percent rate would amount to a six-figure sum on such craft for the Public Treasury.
Mr Wilson’s memorandum indicates he was acting under orders from the political-level policymakers, either Cabinet or a minister, but Mr Thompson said the document “raises a number of very serious and fundamental questions” that the Government needs to answer.
He said in a statement: “What exactly is the legal authority for the Ministry of Finance to adjust these tariffs outside of the parliamentary process? It is our understanding that only through Parliament can tariffs be changed. As such, are the instructions in the memorandum lawful instructions?
“Why is this being done in secret? This matter was never raised in the public domain during the Budget exercise as a policy initiative of the Government. Why has the Government sought to sneak this on the Bahamian people? Whose interests are being served by these changes done outside the public’s view?”
And, questioning why the Davis administration is seemingly “giving further tax breaks to the well-off”, Mr Thompson argued: “There is no good reason to provide blanket duty-free provisions for pleasure crafts that are purchased in the main by high income and wealthy individuals.
“We cannot accept that we have asked pensioners to pay VAT on medicine, and single parents to pay VAT on baby suppliers, while we allow the rich to buy pleasure boats duty-free. That is an untenable position that must be reversed immediately.”
Plausible explanations could be that the Government views the 10 percent pleasure vessel tariff as an obstacle to creating a long-talked about Bahamian yacht registry. This was why the 10 percent tariff on aircraft was eliminated to help facilitate the development of an aircraft registry, and this move may be intended to align aviation and boating import tariffs in that vein.
However, Mr Wilson’s memorandum appears to expose an oversight in the Government’s Budget and its preparations, even though it only involves one tariff line item. And Mr Thompson said the Government’s motives and strategy remain questionable without an explanation to the Bahamian people.
“It just raises a huge number of questions,” he told Tribune Business. “Pleasure vessels are different from fishing vessels. Our question would be: On what legal basis are you changing the tariff without Parliament’s approval because when it comes to changing tariffs that is changing legislation, which means that you have to get Parliament’s approval to do so.
“On what legal basis are they able to do that, and why are they doing that in this manner? If you have a policy to make pleasure vessels duty-free, shouldn’t you have done it in this Budget exercise, come to the Bahamian people and say why you are doing it? Nobody knew the Government was taking this policy decision. It has to come to the people and explain what it’s doing and why. What is the justification for making pleasure vessels duty free?”
Pointing out the multi-million dollar value of high-end yachts, Mr Thompson added: “This is a tax break you are giving to those who can afford to pay, which is not the poor or middle class. Why are they giving tax breaks to those who can afford it? What is their justification? It is the Government’s obligation to present their tax policy. They must come and justify the legal basis on why they are presenting this change.”