The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has extended the deadline for web shops to submit their licence bids by two-and-a-half weeks to March 10, with both sides yet to completely resolve their differences on how the sector’s taxes are to be calculated.

Tribune Business sources last night confirmed that today’s deadline for applicants to respond to the licence Request for Proposal (RFP) had been pushed back, as industry and the Government continue their discussions on taxes and other issues.

A February 18, 2015, letter sent to Alfred Sears QC, the attorney for the Gaming House Operator Association, sets out the Government’s position on the taxes owed by the industry and how they are to be calculated.

The letter, written by Danya Wallace on behalf of the director of legal affairs in the Attorney General’s Office, indicates that the Government and web shop industry have yet to reconcile on several key issues.

In particular, the Government seems to still be insisting that Freeport-based web shops pay six years’ worth of back Business Licence fees from November 24, 2014, despite the city being ‘exempt’ from this fee under the Hawksbill Creek Agreement.

Both sides also appear to be some way apart on the web shop industry’s other major concerns, which were previously revealed by Tribune Business.

These are the Government’s plans to base ‘back’ or ‘retroactive’ taxes on Business Licence fees, when the Bahamian gaming industry (casinos) have traditionally been exempted from this tax.

And, arguably the biggest issue, is how the Gaming Board is defining ‘gross revenue’ in relation to the web shops. It is basing due retroactive taxes on ‘gross revenues’ and ‘gross profits’, rather than ‘gross adjusted revenue’ - the benchmark that the sector is arguing is the internationally-accepted norm.

Ms Wallace’s letter to Mr Sears, entitled ‘Gaming Operators - Outstanding Issues relating to the notices of [tax] Liability’, makes clear the Government wants Business Licence fees to apply to web shop operators.

“As representative for the Gaming House Operator Association, please be advised that the position remains as stipulated in the Gaming Board’s letter dated January 23, 2015,” Ms Wallace wrote.

“Namely that payments made.... in respect of the [six-year] review period as defined in the Gaming Act 2014 includes operations within Freeport.”

Such a position could be subject to legal challenge in the Bahamian Supreme Court under the Hawksbill Creek Agreement, and is contrary to the position understood to have been taken by the Gaming House Operator Association.

Ms Wallace, meanwhile, goes on to confirm that the July 1, 2014, to November 24, 2014, period is included in the calculation of retroactive taxes in the six-year ‘review period’.

She then adds, in a letter copied to Gaming Board secretary Verdant Scott and the Prime Minister’s senior policy advisor, Sir Baltron Bethel: “Thirdly, payments made pursuant [to the review period] are to be calculated by reference to the ‘turnover and gross profits’ generated by the business.

“Consequently, the Notices of Liability are to be calculated on that basis.”

Neither Mr Sears nor Obie Wilchcombe, minister of tourism with responsibility for gaming, could be reached for comment by Tribune Business last night, despite repeated attempts.

However, one source familiar with developments said the Government “seems to be moving in the direction of adjusted gross revenue”, meaning it is heading towards the tax calculation basis desired by the web shops.

Confirming the licence RFP deadline ‘push back’, they said this would likely be helpful to the sector in terms of giving it time to deal with taxation and other issues, such as the $30,000 annual fee per web shop location that the Government is seeking.

“The RFP process is still ongoing and likely to be deferred until a later date,” the source said. “It seems as if there’s a bit of confusion on the Government side.”

As part of the transition to a legalised web shop industry, all operators received forms from the Gaming Board asking them to disclose financial information necessary to determine their six-year ‘retroactive’ tax liabilities.

The forms asked operators to disclose their ‘gross revenues’ and ‘gross profits’, and this newspaper’s sources said the Government/Gaming Board plans to calculate due ‘past taxes’ as a percentage of these figures.

However, they argued that this would contravene established international norms when it came to gaming industry taxes, as the Government would effectively be taxing players’ wagers - not the web shop operator’s gross revenues.

Multiple Tribune Business sources previously explained that the worldwide gaming industry was taxed on ‘adjusted gross revenues’, which is the difference between a player’s wager (sum bet) less the winnings he/she takes home.

The difference is the revenue upon which the web shop operator gains an economic benefit from, effectively representing his gross revenue.

As an example, a player can wager $100, engage in gambling activity that generates sums up to $5,000 but, in the end, only walk away with $20 in winnings. The web shop operators are thus arguing that it is the $100-$20 difference, $80, that represents their ‘adjusted gross revenue’ and what they should be taxed on, not the $100.

The matter has further been complicated by the Government, through the Gaming Board, sending out ‘demand letters’ for the due taxes based upon the ‘gross revenues’ and ‘gross profits’ calculations.

Tribune Business sources close to the situation, meanwhile, said the Government had imposed unnecessary pressure upon itself by giving a vastly inflated figure for the sums of money circulating in the Bahamian web shop industry.

By suggesting that the sector had a collective top-line of $700 million to $1 billion, the sources said it had raised people’s expectations in terms of the taxes it would receive, and was now desperately scrambling to meet these targets.

They suggested the figures quoted by the Government were largely money that was constantly being recycled in the sector, as opposed to new money coming in, arguing that it was impossible for a 350,000 population to be spending such sums on gambling.

“The Minister [Mr Wilchcombe] is quoting the industry as being at $700 million, and then it’s wait, and they’re saying, no, it’s more than that; it’s as much as $1 billion,” one source said.

“We all know it’s not that. We don’t have the population base to create that kind of activity in the Bahamas, and people gambling to that level to generate that kind of revenue in the web shops. The industry is not as significant as they suggest it is.”

The source said the Government’s tax estimates had “started on the wrong premise”, with the industry generating $100-$150 million in ‘new’ revenues annually at best.

Another source, also speaking on condition of anonymity, added: “I don’t know where they [the Government] got those figures from.

“Talking to the operators, they can’t make head or tail of how these figures, $700-$800 million, came about.”