The Tribune

Freeport’s new tax incentives law was yesterday branded an “abomination” and “anti-business” by an FNM Senator, who argued that it will undermine both the city’s founding agreement and economic growth.

Carl Bethel QC told Tribune Business that the Grand Bahama (Port Area) Investment Incentives Act 2016 “violates” the legitimate expectations of 3,500 Grand Bahama Port Authority (GBPA) licensees to continue receiving the tax benefits they have always enjoyed.

Such rights, he argued, had always been provided by the Hawksbill Creek Agreement, Freeport’s founding treaty, which had now been “abrogated” by the new Act.

Mr Bethel said licensees not owned by the Port Group of Companies, Hutchison Whampoa or a combination of both were now required to obtain the Government’s approval before they could continue to enjoy key tax breaks.

These include exemptions from real property tax, capital gains taxes and taxes on earnings, and Mr Bethel argued that “the insertion” of new government bureaucracy would further impede business growth in an already-struggling Freeport economy.

Pointing out that many companies were surviving on the thinnest of profit margins, the FNM Senator suggested that just a marginal increase in costs could drive them out of business.

Mr Bethel made his feelings on the legislation clear when the Bill to amend the Port Area Investment Incentives Act was brought before the Senate on Wednesday for its first reading.

The amendments extend the time that GBPA licensees have to apply to the Investments Board for the continuation of their tax incentives by four months - from six months to 10 months from May 4, 2016.

The extension was granted to give licensees more time to respond following Hurricane Matthew, but Mr Bethel described the initial Act - and its amended successor - as “a ridiculous abrogation of the Hawksbill Creek Agreement”.

He told Tribune Business that Freeport’s founding 1955 agreement was effectively a contract between the Government on one side, and the Port Authority’s owners and licensees on the other.

In return for the latter two parties developing the Port area, and the “annual promotion and facilitation of business” that created jobs and economic opportunities for Bahamians “in what was hitherto a pine barren”, various tax incentives and concessions were granted to the Port Authority and its licensees.

However, Mr Bethel is arguing that the new law introduced by the Christie administration undermines, and cuts across, the Hawksbill Creek Agreement and the Government’s binding contract with the GBPA and licensees.

“The Investment Incentives Act removes the entitlement to, and receipt of, those tax benefits,” he told Tribune Business. “It places on the licensees, and Port prima facie, the need to apply to government entities to receive the benefits of those tax incentives.”

The Port Group of Companies and those owned by Hutchison Whampoa have already been given a 20-year blanket renewal of the tax exemptions that expired on May 4 this year, unlike their fellow 3,500 licensee counterparts.

While not referring to the Act’s discriminatory nature, Mr Bethel said of its effect: “All the licensees who hitherto enjoyed the absolute right to receive those benefits, including the exemption from real property tax, now have to apply for them.

“That is a violation of the nature of the Agreement that has subsisted for 60-plus years, allowing those licensees in the Port area to get exemptions.”

He added of the new law: “In my view, it places an unforeseen burden on licensees which hitherto they did not have to shoulder.

“They will have to hire lawyers, accountants and quantity surveyors to determine the value of their undertaking, and to make application for what before was theirs by right.”

The Christie administration, though, will likely argue that changes to Freeport’s investment incentives regime were essential if the Government and taxpayer are to receive ‘value for money’, and economic growth and development is to occur.

It believes that many businesses and real estate owners were simply ‘pocketing’ the tax exemptions without investing in job-creating expansion and development, and the new structure is designed to ensure they ‘earn’ their tax breaks.

Besides having to apply for the continuation of their incentives, the GBPA’s licensees will also be subject to five-yearly “performance reviews” to ensure they are delivering on their promises. And non-Bahamians owning more than five acres of undeveloped land will have to start paying real property tax.

All this is designed to encourage business and real estate owners to ‘get moving’, and Mr Bethel acknowledged that the new Act contained some good things, such as the ability for companies to appeal if the GBPA rejects their licence application.

To ‘soften the blow’, the Government is also promising a ‘one-stop shop’ for business and incentive approvals via the Ministry of Grand Bahama, Ministry of Finance and Prime Minister’s Office.

Mr Bethel, though, argued that the Investment Incentives Act was “an abomination” that rendered the Hawksbill Creek Agreement effectively “dead”.

“The contract that was the engine that drove the creation of Freeport has now been abrogated in favour of this statutory construct, this legal fix, that puts licensees in a position where there is no Hawksbill Creek Agreement,” he told Tribune Business.

Mr Bethel added that the Investment Incentives Act was also imposing more bureaucracy and red tape on the private sector at a time when the Bahamas was likely to be enduring its third consecutive year of recession or negative growth.

“For them to impose this cost and burden is ridiculous,” he blasted. “It is a ridiculous abrogation of the fundamental underlying construct of Freeport.

“I believe it is bad policy. You don’t have to destroy the whole agreement and its underlying structure to effect the Government having more say with the Port.

“It is my view that this is anti-business, and will negatively affect the marketability of the Port area internationally, in particularly.”

Mr Bethel said Freeport’s “essence” was its ability to attract international business. He argued that “a more aggressive posture” could draw new manufacturers and logistics/assembly providers, but neither the Government nor the GBPA, the latter due to its “own navel gazing and issues”, had done this in years.

Mr Bethel argued that the last time Freeport experienced “sustained and explosive growth” was after the first Ingraham administration passed the Freeport Grand Bahama Act 1993.

Yet many businesses “exist in the margins” given the present economic climate, he added.

“The smallest tax differential can negatively impact their sustainability in the Bahamas,” Mr Bethel told Tribune Business of industrial operators such as Polymers International.

With Bahamian businesses already suffering from relatively high energy and labour costs, the FNM Senator warned that the extra bureaucracy imposed by the Christie administration’s new law threatened to further erode Freeport’s competitive advantage.

“When you start with the high level of overheads, then add in tax regime uncertainty and compliance requirements, you impact these investments and make the Port area less marketable in this type of environment,” Mr Bethel warned.

“At the end of the day, the Bahamas cannot be everything it should be unless Freeport is enhanced to become what it can be.

“That takes vision, not interference with the Government’s insertion of bureaucracy, creating a Ministry of Grand Bahama to approve rights which the licensees already enjoy.

“It’s bad policy. It’s ridiculous. It’s harmful, harming the further development of the Bahamas. I regard the Act as legislative over-reach in the extreme and harmful to the development of Freeport.”