The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s Business Licence fee reforms will act as a disincentive for Bahamas-based companies to expand and become “bigger”, a well-known businessman has warned.

Dionisio D’Aguilar, the outspoken Superwash president, urged the administration to “tweak” its increased Business Licence fee regime and avoid penalising ‘high sales, low profit margin’ companies such as contractors and food stores.

But, probably to the surprise of some (Fred Mitchell in particular), the former Chamber of Commerce president praised the Christie government for taking “tough, unpopular” decisions to rein in its huge fiscal deficits.

Acknowledging that no company wanted to suffer new or increased taxes, Mr D’Aguilar told Tribune Business that Bahamian businesses needed to get past their “micro” issues and focus on the “macro big picture”.

While all would take some kind of ‘hit’ from the 2013-2014 Budget, the Superwash president said they would suffer even more if the Bahamas “went bankrupt” from a national debt now pushing towards $5.5 billion.

But he added that the 2013-2014 Budget’s tax increases would be easier for the private sector to swallow if they were accompanied by the elimination of wasteful spending.

“No one wants any taxes or fees to go up,” Mr D’Aguilar told this newspaper, “but the reality on the ground is that the Government is running $500-$600 million deficits, which is unsustainable.

“I’m happy the Government is mindful of that, and has taken steps to redress the balance.”

The Christie administration is aiming to reduce the GFS fiscal deficit (which strips out debt principal repayment) from a sum equivalent to 6.1 per cent of GDP this fiscal year to 5.1 per cent in 2013-2014.

In raw terms, this means a drop from a $508 million deficit to one that is $443 million - still massive in the context of the Bahamian economy. However, the biggest fiscal adjustments are yet to come, with the Government seemingly counting on a combination of economic growth and its revenue reforms - chiefly Value Added Tax (VAT) - to reverse the tide of red ink.

The Government’s fiscal projections aim to cut the GFS deficit by more than 50 per cent in 2014-2015, the year VAT is introduced, slashing it from $443 million to $217 million. And, come the 2015-2016 fiscal year, the idea is to eliminate the GFS deficit completely.

Backing the general thrust of the Government’s fiscal reforms, Mr D’Aguilar told Tribune Business: “Every businessman hates new or increased taxes, but unless the Government is going to cut spending, which would probably throw us back into recession, they have to tweak the tax system. And there’s money they have to pull into the Treasury.”

Bahamians, he added, were now paying for the former Ingraham administration’s heavy investment in capital works and infrastructure projects. While New Providence now had a new port, roads, airport and hospital, “you can’t have something for nothing”.

However, Mr D’Aguilar agreed that the Government needed to rethink its increased Business Licence rates and plans to abolish all ‘special categories’ apart from commercial banks and independently-owned gas stations.

As a tax on turnover (usually the ‘gross’ or top line), Mr D’Aguilar acknowledged that it disadvantaged companies with high sales volumes and low profit margins.

“A number of companies fall into that category that needs special consideration,” he told Tribune Business. “The push back you’ve been documenting has come from those industries very susceptible to problems with high Business Licence fees.

“They [the Government] need to address that problem. I think they just need to tweak it. I think they’re getting push back from food stores, construction companies, but everyone else, they don’t like it but are going to have to live with it.”

Most Bahamian contractors will likely see a 150 per cent increase in their Business Licence rate as a result of the reforms, while BISX-listed AML Foods - of which Mr D’Aguilar is chairman - is estimating a combination of that and the new 1 per cent Customs processing fee will increase its annual tax burden by $2 million.

Agreeing that labour intensive industries, such as construction, needed to be encouraged by the Government, Mr D’Aguilar said the increased Business Licence fees would discourage companies from expanding and taking on new hires.

He indicated that they would act as a tax on success, and told Tribune Business: “It seems that the larger you are, the more you get penalised, and it discourages you from wanting to get bigger.”

Mr D’Aguilar also called for tax increases imposed on the private sector to be accompanied by reduced subsides to government agencies and corporations, warning that funds seemed to be going “into a bottomless pit with no end in sight.”

Perennial Treasury drains, ZNS and Bahamasair, have both seen their subsidies increased by around $1.5 million in the 2013-2014 Budget.

“There’s a lot of fat in the system, and stupid spending that gives us a lot of inefficiencies - these over-generous pension plans, these government corporations that cost a lot of money and which we don’t need,” the Superwash president told Tribune Business.

“The Government keeps dumping a lot of money into ZNS and Bahamasair. There’s a lot of inefficiencies in government that need to be cut out.”

Calling on the Government to either privatise or start winding-down the likes of ZNS, Mr D’Aguilar described them as “bottomless pits that the Government pours money into with no end in sight.

“Just get out of these money-losing entities and corporations. It’s almost as if the public corporations are hooked on subsidies.I think the business community is a little upset they did not see a reduction in subsidies.”

But, in the final analysis, Mr D’Aguilar urged the private sector to put country before self.

“In a macro sense, I think the Government was right to try and address the deficit problem. Nobody really likes taxes, nobody wants taxes to go up, but we can’t just look at our individual businesses,” Mr D’Aguilar told Tribune Business.

“We’ve got to look at it in a macro sense. The Government has got to address these deficits otherwise we will all suffer.

“If the country goes bankrupt it will not help anyone. I’m happy the Minister of Finance made some very unpopular decisions to try and get the Budget back into balance.

“Kudos to them for taking the tough decisions to arrest these massive deficits. They’re scaring the hell out of me.”