The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government yesterday unveiled a “devil’s in the detail” Budget for the 2013-2014 fiscal year, unveiling a 44-strong package of tax reductions and increases that will impact a wide cross-section of the private sector.

While the Christie administration saved its Value-Added Tax ‘panacea’, the centrepiece of its revenue adjustments, for the next fiscal year, the Prime Minister unveiled measures that, while possibly viewed as ‘tinkering at the edges’, add up to potentially substantial reforms.

Addressing the House of Assembly on the proposed 2013-2014 Budget, Mr Christie hinted that some of the revenue-enhancement measures were designed to bridge a $77 million “gap”.

This is between its new revenue forecast of $1.503 billion for the fiscal year set to end on June 30, 2014, and the $1.58 billion in recurrent revenues projected for the upcoming fiscal year in its February Mid-Year Budget.

The proposed revenue enhancements also indicate that the Government may be backtracking on plans to reduce Business Licence fees to an across-the-board $100 fee when VAT is introduced for the 2014-2015 fiscal year.

Come July 1, the Government is aiming to introduce a new Business Licence fee schedule that “eliminates all special categories of rates”, except for financial institutions and “stand-alone retail gas stations”.

The proposed rates are:

• 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.

In addition, the Government is also amending the Business Licence Act to ensure subsidiary companies pay fees at the same rate as their parent.

And all government corporations, such as the Bridge Authority, BEC and the Nassau Airport Development Company (NAD) will no longer be exempt from paying Business Licence fees, the Prime Minister saying this would be a “means of enforcing greater discipline on resource usage within these entities”.

He added: “The Business Licence fee regime, which is based on sales or turnover, is also being simplified, with the elimination of most special rate categories, an adjustment in the maximum rates paid by larger firms, and a consolidated treatment of parent companies and subsidiaries.”

All this activity is seemingly at odds with the plans outlined in the Government’s White Paper on VAT. However, it is consistent with comments by accountant Pedro Delaney, who told a recent Rotary Club of West Nassau meeting: “Based on my discussions with a number of persons, this is an area that the Government will revisit, and there will be some reconsideration as to what kind of Business License fees and taxes will be introduced.”

He had pushed for the Government to introduce a 10 per cent corporate income tax, something the International Monetary Fund (IMF), in its Article IV report on the Bahamas, had also called for.

Mr Christie, meanwhile, said the Government was reviewing all fees and charges to ensure they covered the cost of providing the associated service.

He added: “The timing is never just right to ask taxpayers to contribute more to the coffers of the Government. Yet we cannot allow the Government to retreat from its obligations to provide and maintain public services.

“There is a cost to providing services that must be adequately financed, and there is a standard at which services must be delivered which correlates with what we are asking taxpayers to pay.

“Indeed, in many instances the demands on Government and the standards to which we are being held have risen, without concurrent changes in the fees attached to services.”

The review was set to conclude before the start of the Government’s new fiscal year, and Mr Christie said it would also include Immigration and motor vehicle charges, Port charges, and a “revisiting of the range of fee structures and rates in the tourism and transportation sectors to bring them up to market levels”.

The Government is also reviewing the range of incentives it grants to the private sector, estimated to cost $285 million per year, which are mainly granted to the tourism and hotel industries.

Adding that the Government would seek public-private partnerships on infrastructure development, the Prime Minister said: “I would also stress that these adjustments follow a lengthy period during which fees remained unchanged and fell out of line with the costs of providing the services that they cover.

“In future, it will be important to subject all fees to a process of regular review and needed adjustments.”

The major adjustments are:

• The Bahamas Electricity Corporation (BEC) will again be exempt from paying 10 per cent Excise Tax on its multi-million dollar fuel imports.

Mr Christie described this as “a means of providing relief on electricity costs, which are projected to decline by 6.6 per cent as a result”.

What this really means is that electricity costs will be 6.6 per cent lower than if the Excise Tax was still in place. It does not mean consumers will necessarily see a drop in their bill or tariff rate.

• The Government has targeted, and hit hard, products that some might see as ‘socially undesirable’ - namely alcohol and tobacco. Yet they have an inelastic demand, and are taxed heavily throughout the world.

“Excise Tax on cigarettes and cigarillos will move from an ad valorem rate based on value to a specific rate per stick, to counter fraudulent Customs declarations and disincentivise sub-standard imports that could have more damaging health consequences,” the Prime Minister said.

This means that import duties on cigarettes will, from July 1, change to 15 cents per stick from a 220 per cent rate. The Government is also changing the Excise rate on cigars from 220 per cent to 220 per cent plus 50 cents, and raising the duty on electronic cigarettes from zero to 45 per cent.

Elsewhere, the Excise Duty on domestically manufactured spirits is rising from $6 to $8 per gallon, and that on imported spirits is going from $11 to $15 per gallon.

“Having been at current levels for many years, stamp duties on imported spirits are being increased,” Mr Christie said.

• Banks will now be responsible for paying real property tax on commercial properties where the borrower is 90 days past due.

Electronic banking transactions, such as debit card (point of sale) deals and online transactions, will see the current 40 cents Stamp Duty eliminated.

• The marina industry will be hit from July 1 onwards by the imposition of Stamp Duty on the sale and lease of marina slips, most of which are located on leased Crown Land (seabed).

• Surplus funds held by statutory agencies will be deposited in the Consolidated Fund from July 1.

• The 10 per cent bonding tax will be eliminated, but Customs will gain 25 per cent of the storage fees collected by private shipping agents.

• “We are also eliminating the $10 stamp tax levied on Customs entries and introducing a 1 per cent Customs processing fee on all entries, subject to a minimum fee of $10 and a maximum fee of $500,” the Prime Minister said.

“We are introducing a Customs processing fee schedule for manifests and other declarations for inbound and outbound aircraft and vessels. The reality is that, in all of these instances, we are recovering the administrative costs involved for Customs in providing these services.

• The Passenger Tax Act will be amended so that all departure tax collected by ticketed passengers would be assessed and remitted to the Government. Children under the age of 12 will be given a $300 exemption on return to the Bahamas.