The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top manufacturer’s plans to expand plant capacity by 50 per cent have been sent back to the drawing board by the Budget, delaying a project that promises to create up to 50 permanent Bahamian jobs.

Greg Ebelhar, head of Freeport-based Polymers International, told Tribune Business that new and increased taxes had made it “harder for me” to convince its owners to invest further multi-million dollar sums in the Bahamas.

Disclosing that he had spent much of 2013 working on the expansion proposal, Mr Ebelhar said it would be a two-year project involving an investment greater than $15 million. And, over that period, some 200 Bahamian construction workers would be employed.

However, Polymers’ projections and calculations have been thrown out by the Government’s 2013-2014 Budget. Mr Ebelhar cited the numerous Customs-related fee amendments, especially the 1 per cent administrative processing fee, and the 5 per cent tax on profits/dividends repatriated out of the Bahamas to foreign parents, as particular concerns.

Revealing that Polymers’ Customs fees had “increased ten-fold” due to the Budget, Mr Ebelhar blasted the Government’s failure to both consult and inform the company - and others - of the proposed tax changes.

And he urged the Grand Bahama Port Authority (GBPA) and its 3,500 licensees to mount a Judicial Review challenge to the 1 per cent Customs processing fee, arguing that as a percentage of value it was a duty and thus breached the Hawksbill Creek Agreement.

Then, when it came to the newly-imposed tax on monies taken out of Bahamian companies by foreign owners, Mr Ebelhar questioned: “At what point does the Bahamas quit selling itself as a tax-free environment?”

Describing the plastics manufacturer as “the largest shipper in and out of the Bahamas for containerised shipping”, Mr Ebelhar said of the multitude of Customs fee increases: “We’re definitely impacted. It’s going to increase our normal Customs fees by almost ten-fold.”

“What’s concerning about this is, if you are the largest containerised shipper in and out of the Bahamas, would you not think there should be some consultation rather than autocratically bringing this thing down?

“We had absolutely no notification this was going on until we had some containers sitting down at Freeport Harbour, and we couldn’t get them in because of this 1 per cent fee. If you’re saying you are trying to be business friendly, it’s absolutely not the way to do it.”

Polymers International, along with all other large Bahamas-based importers, will likely have seen a 5,000 per cent increase in its Customs-related administrative charges.

This is because they will seek to bring in all containers fully-loaded, in a bid to minimise freight accrual, thus exposing these businesses to the maximum $500 fee that Customs can levy. This represents a major leap from the $10 Stamp previously imposed.

Tribune Business understands that other major Freeport industrial players, such as the Grand Bahama Shipyard, have also been hard-hit by the 1 per cent fee due to the volume - and value - of the containers they import.

Informed sources told this newspaper that the Grand Bahama Chamber of Commerce and other private sector groups are now frantically reaching out to the Government in a bid to encourage it to reverse course, fearing it did not account for the Budget’s impact on Freeport.

And, in the case of Polymers International, the tax increases appear to be undermining the Government’s other key objective - that of creating jobs for Bahamians, encouraging foreign direct investment (FDI) and expanding the economy.

“I’ve been trying to work with the parent company to put together a cost amount for the expansion of this facility, and every time I do something, for the last couple of months something keeps punching me in the gut,” Mr Ebelhar told Tribune Business.

“How can I go back to the owners and ask them to invest more here when they keep adding taxes and fees on?”

The Freeport-based manufacturer is also one of the Bahamas’ few major exporters, generating millions of dollars in annual foreign exchange earnings via its sales to North America and Europe. This would make further expansion even more valuable for the Bahamian economy.

“We’re roughly at two-thirds of capacity here, and it takes two years to add additional capacity,” Mr Ebelhar said of the expansion plans. “I had budgets built out for it, and every bit of it is changed because the Government of the Bahamas cannot control their spending.

“It’s getting harder and harder for me to make the sales push that it’s better to do business in the Bahamas. It’s going to be hard for me to make this sale. I thought I had a reasonable package put together, and now I have to go back and revise it again.”

He confirmed that Polymers International was eyeing an investment “in excess of $15 million” to “expand existing capacity by 50 per cent”.

If the project went ahead, between 40-50 permanent Bahamian jobs would be created, along with some 200 construction jobs over the two years.

Mr Ebelhar, meanwhile, warned that the 5 per cent tax on all profits, dividends and other monies remitted by Bahamian companies to foreign parents/shareholders threatened to undermine one of the country’s key competitive advantages - a tax-free environment.

In implementing this tax, the Government appears to have had in mind the Canadian-owned banks and foreign-owned oil companies.

However, it will impact a slew of companies. These include the Bahamas Telecommunications Company’s (BTC) majority shareholder, Cable & Wireless Communications (CWC); Commonwealth Brewery (Heineken); major hotel owners such as Brookfield Asset Management and the British Colonial Hilton’s two owners; Hutchison Whampoa’s various business interests; BORCO (Buckeye Partners); and the Grand Bahama Shipyard.

Several observers have argued that the Christie administration’s Budget was a ‘soak the rich’ version that has effectively taxed success. And Mr Ebelhar indicated that the 5 per cent tax on profit repatriations would act as a disincentive for both new FDI and existing investors to invest further.

“You want people to invest in the Commonwealth of the Bahamas, employ Bahamians and generate revenue for the local economy, and add this 5 per cent tax to money they are sending to the parent company,” he added.

“At what point does the Bahamas quit selling itself as a tax-free environment? All of this is extremely concerning. It’s causing some serious, serious concern over here. It’s getting worse by the day.”

Mr Ebelhar said the 5 per cent ‘profit repatriation tax’ and its impact had to be viewed in the wider context of the challenges Bahamas-based businesses faced.

“You have to deal with the high cost of operations here, with electricity, and then the one advantage you have is a tax-free environment,” he told Tribune Business.

“I understand their [Government] thought process on this, but with all the other disadvantages for doing business here, that’s a tough one to swallow.

“I was on vacation in Italy last week, and had e-mails about this 1 per cent valuation from Customs. I get back and start getting hammered by the rest of this. It’s not a good way to return from vacation.”

Warning the Government that “there’s no such thing as a free lunch”, Mr Ebelhar said Bahamas-based businesses were bound to pass the tax increases on to their customers, meaning that it was the public that will ultimately pay.

“Why not put a payroll tax on?” he asked. “That would be political suicide. They put it on the companies, and they pass it on.”

Analysing the Budget’s wider impact on Freeport, Mr Ebelhar said the new and increased taxes on the aviation industry - both for private planes and commercial airlines - would hurt an economy that was already “suffering badly because of the lack of tourists”.

“It’s bad enough that somebody already pays more for a ticket from Miami to Freeport than a ticket from Miami to Nashville, Tennessee,” he added. “I don’t know how many more punches Freeport can take.”

And, looking at the private sector’s potential remedies, Mr Ebelhar told Tribune Business: “When you start adding fees, and do it on a percentage of value, that’s a duty.

“That’s in violation of the Hawksbill Creek Agreement. I think the licensees, the Port Authority really need to be asking for a Judicial Review of this.You can’t keep on stripping Freeport like this.”