The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Freeport’s business model is incompatible with the “blunt and aggressive instrument” that is Value-Added Tax (VAT), a senior Grand Bahama Chamber of Commerce executive believes.

Kevin D. Seymour told Tribune Business that Freeport’s private sector had “some concerns” about the Government’s selection of VAT as its tax reform centerpiece, given the terms under which the city was founded.

Describing Freeport as the Bahamas’ first public-private partnership (PPP), Mr Seymour said the Hawksbill Creek Agreement was effectively a ‘quid pro quo’ where the Government issued tax incentives in return for the development of infrastructure and economic activity.

He suggested, though, that this model was being threatened by a combination of the Government attempting to chip away at the Hawksbill Creek Agreement via new taxes, and the perception elsewhere in the Bahamas that Freeport was getting “a free ride”.

Mr Seymour urged Bahamians on other islands to realize that Freeport “is special”, and that it had all the characteristics necessary to become a regional trading hub.

He was speaking just before the Grand Bahama Port Authority (GBPA) issued a release confirming that significant differences exist between itself and its 3,500 licensees on one side, and the Government on the other, over the latter’s decision to levy VAT on business-to-business services transactions in Freeport.

The GBPA met Michael Darville, minister for Grand Bahama, on Friday, in a bid to obtain an assurance that the Government was reviewing these concerns.

The meeting, though, saw the Government confirm it held a different view on whether levying VAT on ‘business-to-business’ services transactions in Freeport would violate the Hawksbill Creek Agreement.

While the GBPA and the Grand Bahama Chamber of Commerce believe this would breach Freeport’s founding agreement, Mr Darville said the Government had been advised it did “not violate the intent and spirit of the Hawksbill Creek Agreement”.

The Government and GBPA/private sector thus appear on collision course over this aspect of VAT, with the matter likely headed to the courts if it cannot be resolved before January 1, 2015.

Mr Seymour, who last week described the Government’s ‘VAT on Freeport services’ plan as “peculiar”, because it would result in no net revenue gain for the Public Treasury, indicated that this was one of many efforts to ‘chip away’ at the city’s tax incentives.

“Our concern is this,” Mr Seymour told Tribune Business. “If the Government is going to select a tax for fixing the fiscal deficit and paying down the national debt, which is around $6 billion, surely we have some concerns in Freeport about them using such a blunt and aggressive to do that, which is incongruous with the Freeport model.”

The Chamber executive explained that the ‘Freeport model’ was based on the Government providing the incentives to create a ‘tax-free zone’, in return for the private sector building a city’s infrastructure and generating economic activity.

“These two things together provide economic growth and revenues for the Government,” Mr Seymour said. He added, though, that the common misconception elsewhere in the Bahamas was that Freeport businesses were “exploiting” the city’s ‘tax free’ status and that Nassau was “losing out”.

“Because Freeport is intended to be a tax-free port, you have a situation where Government is, from time to time, trying different things on with respect to Freeport with different taxes that might not have been specifically exempted,” Mr Seymour told Tribune Business, “and each time we have to go to court for them to make a determination........

“Freeport is special, and it’s important the rest of the Bahamas understands the concessions we have. They think: ‘You guys in the north are getting a free ride, and we have to subsidise the basis on which Freeport was founded’.”

Refuting this, Mr Seymour said the original intention in 1955 was for Freeport to become “a free port, free of taxes, not a free ride”. With the city a net positive contributor to the Public Treasury annually, the Chamber executive described it as the first example of a Bahamian PPP “codified in the Hawksbill Creek Agreement”.

“It was a quid pro quo, a PPP, and given the Government’s financial state, they’re going to have to rely more on this vehicle to achieve the intended development in the Family Islands that they are seeking,” he told Tribune Business. ‘They can’t borrow any more.

“Freeport is ideally suited to become a free trade zone, taking it to another level by allowing businesses to come in, set up and, as long as goods and services are exported externally, they should be allowed to take advantage of Freeport’s God given location.”

Mr Seymour said facilities such as the Freeport Container Port, deep water harbor and Federal Aviation Administration (FAA) certified airport with pre-clearance status gave Freeport all the supporting platform it required.

“We have all the logistical things needed for this place to be truly wonderful, for this place to become a free trade zone,” he added.