The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sands Beer’s manufacturer has urged the Government to increase the ‘tax differential’ advantage it enjoys over Commonwealth Brewery by 100 per cent for a “guaranteed” 15-year period, having been “assured” the authorities will not force it to close down.

Fred Smith QC, who is also a partner in the Bahamian Brewery & Beverage Company, told Tribune Business he and Jimmy Sands, the firm’s principal, had called on the Christie administration to increase its ‘duty spread’ advantage from the current $3 to $6 per liquid gallon.

Arguing that this would “guarantee growth” for the six-year old brewer, Mr Smith told Tribune Business that the Government would not fun afoul of World Trade Organisation (WTO) rules should it accede to the company’s request.

Pointing out that there were WTO provisions for the protection of infant industries, the Callender’s & Co attorney and partner said they had “encouraged” the Government to “create an exclusion for the Brewery” in its current membership negotiations.

The Bahamian Brewery & Beverage Company’s recommendations were presented to the Government on Friday, during a meeting with a Ministry of Finance team that included Michael Halkitis, minister of state for finance, and Simon Wilson, deputy director of economic planning.

The meeting was arranged after the Ministry, as previously revealed by Tribune Business, threatened to increase the duty the Bahamian Brewery & Beverage Company paid on its domestic beer sales from $2 per liquid gallon to $3.50.

Apart from increasing its tax burden by 75 per cent, such a move would also slash the ‘duty spread’ advantage the Bahamian Brewery & Beverage Company enjoys over its main rival, BISX-listed Commonwealth Brewery, by 50 per cent.

Commonwealth Brewery is paying $5 in duty per liquid gallon, but does not incur its Grand Bahama-based rival’s shipping costs in servicing the Nassau market. And its BISX-listed rival is also backed by the deep pockets of Heineken, its 75 per cent majority shareholder.

The Bahamian Brewery & Beverage Company warned that if the Government persisted with its plans, it would force it to raise prices, make it uncompetitive and, ultimately, put it out of business.

Describing last week’s meeting between the Brewery and the Government as “very encouraging”, Mr Smith said the Ministry of Finance team had been presented with “a very detailed financial report” on the issues affecting the company.

“We emphasised the financially debilitating consequences of the proposal by the Government to reduce the $3 per liquid gallon tax differential advantage enjoyed by the Bahamian Brewery & Beverage Company, as against Commonwealth Brewery in Nassau, for sales from Freeport to the rest of the Bahamas,” Mr Smith told Tribune Business.

“We emphasised that the PLP had committed to putting Bahamians first, and promoting Bahamian investment and creating more jobs, but that regrettably the proposal to increase our taxes was a contradiction of those three fundamental promises to the Bahamian electorate pre-election.”

As to the Ministry of Finance’s response, the well-known QC added: “We were assured by Minister Halkitis that the Government did not want to jeopardise industry, or for the Brewery to close down.”

However, Mr Smith stopped short of stating that Mr Halkitis gave an absolute guarantee the Government would abandon its proposal to slash the company’s ‘duty spread’ advantage.

He added: “Mr Halkitis expressed great support for the future prospects of our Brewery, and was particularly interested in its growth and expansion, and sales abroad promoting the Bahamas.

“We assured the Minister the Brewery wanted to continue expanding and promoting abroad, and did not wish to close down, but this was entirely conditioned on the Government promotion and protection of our industry, as they previously did with chicken production in Freeport and other businesses.”

Mr Smith sought to justify the Bahamian Brewery & Beverage Company’s request for a $6 tax spread advantage by pointing out that Commonwealth Brewery had enjoyed exactly the same differential, for a 20-year period, over imported beer and liquor.

“We requested the Minister to look at increasing our spread to guarantee it for 15 years, so this fledgling, all-Bahamian investment in Freeport, in a recessionary economy, could be guaranteed its growth, without the perennial threat of taxes,” Mr Smith told Tribune Business.

“We recommended increasing it to $6, as enjoyed by Commonwealth Brewery for 20 years...... We have given them the meat to chew on.”

Some $27 million has been invested in the Bahamian Brewery & Beverage Company to-date, and it has 80 employees.

However, it has suffered cumulative losses in its start-up phase due to factors such as the recession, high electricity and raw material costs, and the US dollar’s appreciation against the euro - which increased construction and equipment costs, as most of this came from Europe.

Increasing the tax spread advantage, Mr Smith said, would give the Bahamian Brewery & Beverage Company the certainty - in relation to its tax burden and competitive advantage - that would allow it to plan its future.

“The Brewery could embed itself in the industrial matrix of the Bahamas, and increase employment 100-fold,” Mr Smith told Tribune Business.

“I told them [the Government] that I was tired and frustrated as a part-owner of the Brewery that every couple of years we have to have scary, and often precipitously anxious discussions, with the Ministry of Finance which is seeking to increase our taxes and reduce the differential spread between our Brewery and Commonwealth.”

Looking to put a stop to all this, Mr Smith said an increase in the tax differential to $6 would make the Bahamian Brewery & Beverage Company more competitive, enabling it to boost profits, expand and hire more Bahamians.

“This would be a win-win for everybody, instead of a lose-lose,” he added, calling on the Government to protect Bahamian industry and “live up to pre-election promises”.

Asked whether the request for an increased ‘duty spread differential’ would violate trade liberalisation rules on ‘national treatment’, which would require Bahamian and foreign investors to be treated equally, Mr Smith said it would not.

He explained: “There are provisions under the WTO that help to protect, for certain periods of time, infant industries.

“We highlighted those provisions and encouraged the Government in their current negotiations to create an exclusion for the Brewery.”