The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Freeport Oil Holdings Company’s (FOCOL) largest shareholder yesterday urged the Government to “consider very carefully” the impact Business Licence fee increases would have on its hundreds of Bahamian investors, adding that the firm’s payment was set to “triple” to around $3 million.

Franklyn Wilson, the Arawak Homes and Sunshine Holdings chairman, told Tribune Business that the Government was increasingly employing the oil companies - FOCOL, Rubis and Esso - in “the critically central role of tax collectors”.

Noting that the Business Licence fee was one of many taxes levied on the oil/petroleum industry, Mr Wilson said the sector was ill-placed to respond because it was both price controlled and ‘high sales volume, low profit margin’.

Given that both wholesale and retail margins are governed by price control, the oil/petroleum sector is a volume business, and it cannot pass the impact of an increased tax burden on to consumers.

As a result, the effects of the proposed Business Licence fee increase on FOCOL, which is seeing its rate more than double from 0.75 per cent to 1.75 per cent, will be felt directly on the bottom line.

Taking FOCOL’s 2012 annual results as an example, the roughly $2 million increase in Business Licence fees would amount to 11.8 per cent of its bottom line.

That would, in turn, reduce both the company’s retained earnings and dividend payouts to small Bahamian retail investors.

In response, Mr Wilson disclosed to Tribune Business that FOCOL’s management had already met with the Ministry of Finance to express its concerns over the Business Licence fee hike, as the impact “could not have been what they intended”.

When asked what the impact of the proposed Business Licence fee increases would be for his various business interests, which include RoyalStar Assurance, Sunshine Insurance and Arawak Homes, Mr Wilson replied: “Nothing is helpful.”

Tribune Business’s own calculations, based on FOCOL’s 2012 full-year revenues of $388.863 million, suggest that its Business Licence fee would rise from $2.916 million per annum to a whopping $6.805 million.

While suggesting this was incorrect, the company’s largest shareholder indicated the proportionate increase was not far off.

“It’s not quite that much, but it’s a hell of a lot,” Mr Wilson told Tribune Business of the increase. “I think our internal calculations had it going up from roughly $1 million to $3 million-some. It’s like tripling.”

Pointing out that the industry was price controlled, Mr Wilson added: “We have spoken to the folks at the Ministry of Finance, and hopefully they will understand that this could not probably have been their intent.

“The oil companies in effect, and now the banks to some extent, have increasingly emerged to play the critically central role of tax collectors. The three major oil companies together have become a major source, and are performing a major function assigned by the Government, to collect the Government’s revenues.”

Asked whether the Business Licence fee would harm FOCOL’s business, and hold back growth, Mr Wilson responded: “No question.”

He added that the oil/petroleum industry was “touched at different points” by taxes, right from the point where Stamp Duty was levied on imports as they landed.

“You have taxes at different levels in the process,” Mr Wilson said. “Business Licence has emerged as just the latest point at which you pay taxes. It’s a very high tax. It’s a problem.

“Management has met with the people at the Ministry of Finance, and hopefully they will understand. In the case of FOCOL, there’s a particular reality in that FOCOL is a publicly traded company.”

Noting that it was 100 per cent Bahamian-owned, Mr Wilson described FOCOL as “a widows and orphans stock” due to its attraction for pension funds.

Pointing out that the Business Licence increase would not just impact himself and the other largest shareholders, he added: “This has implications for the people who significantly depend on the cash flow from these dividends.

“In every society, all of the most responsible pension funds have a significant interest in a certain number of stocks - Commonwealth Bank, Cable Bahamas, FOCOL - among others.

“I put them among the widows and orphans stocks where pension funds with liquidity buy one or more of these stocks,” Mr Wilson said.

“To hit the profits to that tune has the impact of threatening dividend cash. It is something the Ministry of Finance folks should consider very carefully. We hope the case we have put to them is duly noted”.

As a tax on turnover (usually the ‘gross’ or top line), Business Licence fees disadvantage companies with high sales volumes and low profit margins.

Mr Wilson and FOCOL are far from alone in expressing their concerns.

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 is estimating a combination of that and the new 1 per cent Customs processing fee will increase its annual tax burden by $2 million.

Commonwealth Brewery, too, is estimating that its total tax burden will increase by $2.5 million due to the 2013-2014 Budget.