The Tribune

• Changes create one standard rate for sector

• Kalik maker’s rate cut 50%; GB rival’s up 25%

• Move to eliminate ‘unlevel playing field’ on tax

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Budget reforms designed to brew “a level playing field” among Bahamian beer manufacturers are threatening to cost one Grand Bahama producer the tax advantage it has long enjoyed over its BISX-listed rival.

Changes to the Spirits and Beer Manufacture Act, tabled among the legislative amendments accompanying the 2022-2023 Budget, reveal that the Government is moving to ensure all beer manufacturers - Commonwealth Brewery, the Bahamian Brewery and Beverage Company and various micro breweries - pay the same standard tax rate of $2.50 per liquid gallon.

This involves slashing Commonwealth Brewery’s tax rate, presently pegged at $5 per liquid gallon, by 50 percent. And the Bahamian Brewery and Beverage Company, which also enjoys the incentives provided under the Hawksbill Creek Agreement, will see its tax rate increased by 25 percent from the present $2 to bring it the uniform $2.50 per liquid gallon rate.

The “objects and reasons” section of the Spirits and Beer Manufacture (Amendment) Bill 2022 states that the revised rates are designed to “standardise the tax on beer manufactured under the Act, and shandy, to $2.50”. 

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that “fairness” and equity in taxation was the primary reason why the Davis administration has elected to impose one uniform per liquid gallon rate on the beer manufacturing industry.

He added that the elimination of a “two-tier” taxation system would aid existing micro breweries such as Pirate Republic, founded by members of the Holowesko family, and especially those that are already successful and on the verge of expansion, in addition to those that have just launched.

“In essence what we have is a situation where any micro brewery, which because of demand has grown, will have paid a higher rate,” Mr Wilson said of the current system. “We have a number of successful micro breweries here, so they will be discouraged if we have a two-tier system.”

The Bahamian Brewery and Beverage Company, the Sands beer manufacturer which is 100 percent locally owned, has long argued that the preferential tax treatment it enjoys is critical to maintaining its competitiveness against Commonwealth Brewery.

However, Mr Wilson replied: “We are already providing Bahamian Brewery with significant protection with respect to imported beers. Why do we have an unlevel playing field among Bahamas-based companies? That’s the side effect. We looked at equalising the tax rates. There’s been a lot of interest in micro breweries. Micro breweries are also approaching the level where they are no longer considered micro breweries. That’s the reason.”

One observer, speaking on condition of anonymity, yesterday suggested the beer taxation reforms were also designed to chip away at Freeport’s status under the Hawksbill Creek Agreement and the tax breaks this provides. “The move is to regularise the Port area and Port licensees with government areas,” they added. “That’s what I think about that. It’s certainly along those lines. Think about it. Why else would they do it? It’s really to break the back of Freeport.”

The source said they were also aware of investor plans to open micro breweries in islands such as Eleuthera and Abaco. However, Jimmy Sands, the Bahamian Brewery and Beverage Company’s founder, has not returned Tribune Business calls and messages seeking comment on the planned tax changes and their likely impact.

Intermediaries subsequently informed this newspaper he did not wish to address the matter publicly, but he previously lobbied hard - and successfully - to persuade the last Christie administration to reverse course on reforms that were similar to those now introduced by the Philip Davis led-government.

The present structure, which has existed since the 2010-2011 Budget, gives the Bahamian Brewery and Beverage a $3 per liquid gallon of beer tax advantage over its BISX-listed rival. However, in an interview conducted almost one decade ago in September 2012, Mr Sands told Tribune Business he was aware the Kalik manufacturer is lobbying to remove this differential so that both companies were taxed on manufacturing at the same rate.

Maintaining the difference, he explained, was crucial to Bahamian Brewery’s survival given that it then incurred $1.04 per case in transportation costs to get its product from Freeport to Nassau - costs Commonwealth Brewery did not have.

Mr Sands said he feared eliminating the tax differential would push Bahamian Brewery into oblivion given the latter’s greater production capacity, which enabled it to spread its costs and generate economies of scale, coupled with the financial and marketing might of its 75 percent majority shareholder, Heineken.

“They want to even the playing field by bringing me up to the same level as them, and if that is done they’ll wipe me out,” Mr Sands told Tribune Business at the time. “I pay a slightly lower duty structure than they do.” He explained that Bahamian Brewery had been able to exploit the additional tax incentives offered by the Hawksbill Creek Agreement, whereas Commonwealth Brewery had chosen to base itself on New Providence.

Mr Sands later reiterated that eliminating the tax differential would have “a drastic impact” on Bahamian Brewery and its products, including Sands, Sands Light, Strong Back Stout, High Rock Lager, Bush Crack Beer and Triple B Malt.