The Tribune

• Concern over Dorian tax breaks restructure

• Switch from ‘blanket’ to ‘case by case’ hinted

• ‘Travel spend up but not take care of Abaco?’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Abaco’s Chamber of Commerce president yesterday urged the Prime Minister to “put his money where his mouth is” following strong indications the Government is leaning away from a “blanket” renewal of Dorian-related tax breaks.

Daphne Degregory-Miaoulis told Tribune Business the Davis administration appeared to be “talking out of both sides of their mouth” after Michael Halkitis, minister of economic affairs, said the present wide-ranging concessions regime was “not optimal” and cannot “go on for ever”.

Addressing the Abaco Business Outlook conference, the minister acknowledged the island’s recovery from the devastating Category Five storm was not complete and that both businesses and residents needed further tax-related relief to ease the reconstruction burden.

With the present regime, governed by the last Special Economic Recovery Zone (SERZ) Order, set to expire on December 1, Mr Halkitis said the Government would assess then what will replace it. He added, though, that following previous natural disasters, such as Hurricane Matthew in 2016, the Government had ultimately replaced such a structure with granting tax relief to individuals who applied on a “case by case basis”.

Mrs Degregory-Miaoulis, though, argued that reverting to a regime where permission to access concessions has to be sought individually from the Ministry of Finance will make it virtually impossible for businesses and residents to plan properly due to uncertainty over whether the relief will be granted.

This would now be subject to official whim and discretion, and she added that such a situation would likely deter and/or delay physical reconstruction because the resulting uncertainty meant contractors cannot price jobs accurately. The end result would be disruption, interruption and potentially higher costs associated with Dorian’s recovery.

Such an outcome, the Abaco Chamber chief argued, was inconsistent with the pledge given by Philip Davis KC during the week that Dorian’s third anniversary was recognised that his administration is fully committed to ensuring the is;land’s complete recovery from the storm.

She was backed by Roscoe Thompson, head of the Marsh Harbour/Spring City Township, who questioned how the Government could increase its travel budget “when you can’t take care of Abaco”. Referring to a Tribune Business report earlier this week, which reported how the Government’s full fiscal 2021-2022 travel spending grew to $11.8m, exceeding the Budget estimates by 11.1 percent, he said simply: “I’m lost on that.”

Suggesting that the SERZ renewals were akin to “beating a dead horse”, with Abaco’s private sector and homeowners frequently having to push the Government to act every time they have expired previously, Mr Thompson suggested the Government could reap the consequences of not reinstating the current structure at the next general election.

Both the Ministry of Finance and Department of Inland Revenue, though, have previously voiced concern that the Dorian tax breaks regime is open to abuse by unscrupulous persons who use it to import items VAT and duty-free despite not qualifying for the concessions. They have also indicated the Government is giving away too much in tax breaks to wealthy second homeowners who can afford to rebuild without such help - especially when it is enduring its own fiscal crisis.

However, both Mrs Degregory-Miaoulis and Mr Thompson said they support “policing” to prevent the tax breaks from being illicitly exploited. Responding to the “case by case” approval proposal, the Abaco Chamber chief told this newspaper: “I don’t think that’s going to work. I also think it’s very short-sighted on the Government’s part to wait until December 1 to reassess the situation.

“The situation is what it is now. It’s not going to change between now and December 1. It [case by case approvals] doesn’t allow for planning. These people have no concept of what goes into ordering things. Supplies are not available. You may not be able to get what you’re ordering for three to six months.

“On a case-by-case, each importer will have to go through the process separately. Nothing in government is accelerated. How do you run a business? How do you plan? Contractors are reluctant to even given quotes on jobs because they don’t know what then prices are going to be three months out,” Mrs Degregory-Miaoulis continued.

“The Prime Minister says he’s committed to the rebuilding of Abaco and Grand Bahama. If he’s committed he should put his money where his mouth is and say he will extend the [SERZ] Order by one to two years and put some policing in if he wishes. I think really that they’re talking out of both sides of their mouth. You are either committed or you are not committed, and if you are committed create access that helps everyone.”

While acknowledging the Government’s concerns that the SERZ tax breaks could be exploited for tax evasion and other illegal purposes by non-Abaco and Grand Bahama residents, Mrs Degregory-Miaoulis argued that the benefits to both islands’ post-Dorian recovery far outweighed these costs.

“I don’t care what it is in The Bahamas; there will always be people who take advantage of it, but at the end of the day we need Abaco to rebuild,” she said. “The percentage of people that are going to use these concessions for personal gain, does that outweigh the number of people in desperate need? You can’t control theft, but you can hold innocent people hostage because you can’t put controls in place?”

Mr Halkitis, responding to questions at the Outlook conference, said: “We understand that the recovery is not complete, recovery is still ongoing and people still need access to these concessions and we are committed to do that.”

However, he then added: “We do not believe blanket concessions can go on forever. We are committed to go on to December 1, and will make another assessment at that time. We are also committed that, should a decision be made to stop it, we are committed to reviewing approvals on a case by case basis.”

Pledging that the Government is “committed to finding the right balance” between assisting legitimate post-Dorian reconstruction on one side, and preventing illegal activities and revenue leakage on the other, Mr Halkitis said it was a question of “which tool do we use - a blanket exemption, or put in place some mechanism.... It happened in previous disasters we had in New Providence, where we had to extend it and determine on a case by case basis”.

The minister hinted that the Government did not think continuing the present blanket SERZ tax breaks is “the right tool” to achieve the best outcome for all concerned. However, the $3.4bn losses and damage inflicted by Dorian far outweighs the impact from any other hurricane.

“I guess they’ll know in 2025 or 2026,” Mr Thompson said, hinting at potential political fall-out for the Davis administration if it restructures the SERZ tax breaks. He reiterated his previous call for the present regime to remain in place for the next one-two years with proper policing, rather than switch to a “case by case” situation where everything is determined by the Government, resulting in uncertainty over whether tax breaks will be granted and in what timeframe.

“We know how the Government operates and how bureaucratic it is. It takes 16 years to get a response to a Crown Land application,” Mr Thompson told Tribune Business. “If they don’t extend the SERZ Order for a year you’re putting Abaco at a disadvantage in not getting back on its feet....

“I think it’s unrealistic of Mr Halkitis to say that. He has to remember we lost a year-and-a-half to COVID. I know this government is trying to get every dime and dollar out of the country at this point. You can increase the travel budget but you can’t take care of Abaco? I’m lost on that.

“You increase the budget for travel, but can’t pave the roads and put in the infrastructure and water? How does that happen? How do you let your second grossing economy struggle? Wouldn’t that be your priority to get that up and going, and back on its feet, then tax them? You’ll get more out of them in the long run.”

Mrs Degregory-Miaoulis said the Abaco Chamber has had to “fight hard” to win previous SERZ extensions, and Mr Thompson added: “It seems like we’re beating a dead horse. I’m glad we do it. It keeps them on their toes, but here we go again. This is The Bahamas.” Ken Hutton, the former Abaco Chamber president, yesterday called for the Government to consult the private sector on whatever changes it decided for the SERZ before they were implemented.

Earlier this year, in extending the SERZ Order by a further 11 months to December 1, 2022, it included a clause that was little-noticed at the time with most persons just grateful for the extra time.

“A person desirous of importing goods into a SERZ.... must make application to the minister of finance to do so within 90 days of the commencement of this Order, and any approval granted shall be valid until December 1, 2022,” the Order said. The tax breaks/concessions that had to be applied for fell under the VAT, Excise, Tariff and Customs Management Act, and covered construction materials, household furniture and appliances, electrical and plumbing supplies.

And the Government’s decision not to reinstate the 10 percent levy on construction services in the hurricane-hit areas also provoked an outcry when it occurred on New Year’s Day.