The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods is facing a $2 million increase in its annual tax bill due to the Budget, a sum equivalent to 60 per cent of its projected net income.

Gavin Watchorn, the BISX-listed food retail and franchise group’s chief executive, told Tribune Business that price increases and “mass inflation” were the likely outcome, as Bahamian businesses could not fully absorb the Christie administration’s tax rises.

Mr Watchorn, who is also AML Foods’ president, added that the proposed Business Licence fee increase alone was equivalent to 45 per cent of its projected $4 million group-wide profit for the current financial year.

He told Tribune Business that the Budget’s collective impact was to further undermine the Bahamas’ status as a low or ‘no tax’ environment, as the burden on the private sector was now “exorbitant”.

And Mr Watchorn warned that the tax hikes would reduce private sector growth and new job creation - two factors absolutely crucial to the Christie administration’s twin goals of economic and fiscal recovery.

“This will impact our company in the range of $2 million, between increasing Business Licence fees and the 1 per cent processing fee on Customs,” Mr Watchorn told Tribune Business.

The group, whose various subsidiaries and retail formats pay their Business Licence fees separately, will see its rate go from the current 0.75 per cent to 1.25 per cent across-the-board. For AML Foods, the 50 basis points increase is equivalent to a two-thirds increase in percentage terms.

And, as one of the Bahamas’ major importers, AML Foods will be among those hardest hit by the Government’s decision to impose a 1 per cent Customs processing fee based on specific entry value. This replaces the $10 Stamp Tax per entry, and is capped at a maximum of $500.

“Retailers were expecting a more fairer Business Licence system,” Mr Watchorn added. “Instead, it has gotten more aggressive. The majority of businesses that are high volume are not lucrative.”

Prime Minister Perry Christie, in his Budget communication last week, argued that the reforms would “simplify” the Business Licence fee schedule. Yet they appear to discriminate against larger companies, particularly those such as food stores and construction firms.

For the proposed new structure, and rates, are even more firmly attached to top-line sales turnover. This means high volume, low profit margin industries, will pay a Business Licence fee equivalent to a greater percentage of their net income than a ‘low volume, high margin’ business such as a law firm.

The Christie administration’s proposed reforms “eliminate all special categories of rates” apart from those levied on commercial banks and “stand-alone retail gas stations”.

While there are few of the latter still in existence, the last exemption indicates the Government is at least aware of the Business Licence fee’s impact on ‘high turnover, low margin’ businesses. It raises the question as to why all other ‘special categories’ have been eliminated, but not gas stations.

The proposed new rates are as follows, and seem to be designed - at least were the Government is concerned - to protect small and medium-sized companies. Only their Business Licence fee rate is unchanged:

Businesses with turnover between $500,000 - $5 million: 0.75 per cent

Businesses with turnover between $5 million to $50 million: 1.25 per cent

Businesses with turnover between $50 million to $100 million: 1.5 per cent

Businesses with turnover greater than $100 million: 1.75 per cent.

“The reality is $2 million is 60 per cent of our net profit, and food costs are going to go up,” Mr Watchorn told Tribune Business. “This is the reality from our perspective.

“There is no way we can absorb $2 million in extra taxes, and we’re rapidly moving away from being a ‘no tax’ nation. The level of taxation now is exorbitant.

“Our Business Licence fee will be about 45 per cent of net profit, so please don’t tell me this is a tax free environment. It’s a tax on success.”

This is the second time in three years that the Government is implementing major reforms to the Business Licence fee structure, and the resulting uncertainty over tax policy - especially with Value-Added Tax (VAT) a year over the horizon - is likely one factor behind the private sector’s reluctance to expand and create new jobs.

Mr Watchorn alluded to this, telling Tribune Business: “Increasing these taxes, with VAT coming down the road, the fears of mass inflation will be realised, because businesses cannot be expected to absorb these taxes.

“If they’re expected to absorb these taxes, there’s not going to be much happening with unemployment.”

The Government has repeatedly stressed it would try to seek a balance between repairing the public finances without disrupting economic growth and job creation. But the comments of Mr Watchorn and others indicate the pendulum may have swung too far towards the former goal.

One well-known business executive, who requested anonymity, told Tribune Business that his firm’s Business Licence fee would likely “more than double” as a result of the Budget. He added that the increased payment would be higher than the company’s projected bottom line.

“Many of us may have to pay more than we make in net profit,” the businessman said. “How can you expect us to pay more than we make in net profit? You can’t tax people more than they’re earning

“Our tax is more than doubled. There’s no consideration for what your net profit is. It’s insanity. You keep hanging on, making no one redundant, paying people but not giving raises, and what’s the point?

“You try to be a good corporate citizen, and you get it up the wazoo. I think it’s going to slow the economy more than ever.”

Edison Sumner, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chief executive, told Tribune Business the organisation was receiving private sector feedback on the Business Licence fee increases and other aspects of the 2013-2014 Budget.

Suggesting that everything needed to be placed in the context of VAT’s imminent arrival, and the Government’s wider tax reform agenda, Mr Sumner said: “There have been some concerns expressed across the spectrum, particularly the small and medium-sized enterprises, and it’s something we will look at and have a discussion on.”

The Government’s VAT White Paper effectively proposed eliminating the Business Licence fee, and instead levying a $100 flat fee on all companies

Mr Sumner, though, said the major Business Licence reforms announced in the 2013-2014 Budget did not necessarily mean the Government had abandoned its White Paper plan.

“That is one of the pre-emptive moves by the Government to prepare for VAT,” he said of the new Business Licence reforms. “The Government is obviously taking a couple of approaches as to how they want to do this.

“Everything is tuning up for the coming on stream of the new VAT scheme for next year, which we think is a very aggressive target for getting this done.

“All these initiatives done by the Government with respect to taxation come back to the same bottom line: The introduction of the VAT scheme and whenever that comes on stream.”