The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The FNM’s deputy leader yesterday pledged the party will repeal Freeport’s new investment regime if elected to government, amid continuing uncertainty over whether businesses should apply to receive continued tax exemptions.

K P Turnquest told Tribune Business that the main Opposition party was “firmly committed” to repealing and replacing the Grand Bahama (Port Area) Investment Incentives Act 2016, arguing that the legislation was “not conducive to a stable business climate”.

“We are firmly committed to repealing that Act, particularly the portions that relate to applying for incentives,” Mr Turnquest said.

“We believe that Grand Bahama and Freeport need an opportunity to rebound, and this particular piece of legislation does not help us to create the kind of certainty to attract investors here for the long-term.

“The Bill does not help spur investment in Grand Bahama. It does the exact opposite.”

The expiration of Freeport’s real property tax, income and capital gains tax exemptions on May 4, 2015, enabled the Government to remove these incentives from the purview of the Hawksbill Creek Agreement via the new Act.

The Grand Bahama Port Authority’s 3,500 licensees, with the exception of the GBPA and Hutchison Whampoa’s companies, now have to apply to obtain these incentives from the central Government’s Investments Board in Nassau.

The application process is viewed by many as introducing extra costs, bureaucracy and uncertainty into Freeport’s investment and business climate, especially since the granting of incentives is now at the Government’s discretion - and no longer an ‘absolute right’ under the Hawksbill Creek Agreement.

Mr Turnquest emphasised these issues yesterday, pointing to the reporting requirements imposed on licensees, as well as the Investment Board reviews to ensure granted incentives are being properly used.

“There’s subjectivity in the process that may be unfair depending on the status of the investor,” he told Tribune Business. “We don’t believe it’s conducive to a stable environment or making the jurisdiction competitive vis a vis our competitors.

“We are on record to repeal that Act and replace it with a true Incentive Act to put Grand Bahama on par with its competitors, if not advance us to a regime with some of the advantages we had in the past.”

The FNM’s stance, as outlined by Mr Turnquest, introduces a new consideration - possibly even further uncertainty - into the decision many GBPA licensees are currently agonising over in terms of whether to formally apply for incentive renewals under the new Act.

The Government last week extended the deadline for submission of such applications by another month, pushing it back from April 4 to May 4, 2017.

This is the second such extension granted by the Christie administration, and many observers are interpreting it as a sign that few GBPA licensees have been applying.

Further evidence for this assessment comes from the fact that the Government, in what many view as an attempt to pressure GBPA licensees to comply, has been hand delivering letters to Port Lucaya Marketplace tenants urging them to apply for their tax exemptions.

“I look forward to your co-operation and support as we now work towards the continued growth and development of Grand Bahama Island,” said the letter, signed by Melvin Seymour, permanent secretary for the Ministry of Grand Bahama.

Tribune Business has seen a copy of one such letter, as well as the March 30, 2017, advisory sent by the Grand Bahama Chamber of Commerce to its members, suggesting that they comply and apply.

Confirming the month-long extension to May 4, the Chamber letter acknowledged: “Currently, the most frequently asked question amongst our members is whether or nor they should apply for the various tax concessions detailed in the Grand Bahama (Port Area) Investment Incentives Act 2016.

“The Chamber will continue its dialogue with Government to gain further clarity to the interpretation of the provisions of the Act on behalf of its members.”

Key among the private sector’s concerns, as yet unanswered by the Government, is whether the new Act and its application form, taken together, effectively ‘lock in’ licensees not planning to expand their businesses to maintaining their existing employment levels for five years.

Should they be forced to downsize, the Act allows the Minister for Investments to strip Freeport businesses, partially or in full, of their tax breaks, and even enables them to demand payment of taxes that should have been paid if no concessions were granted.

The Act enables the Minister to “reduce or revoke in full” the tax breaks granted, and even “demand payment in respect of any money that would have been payable had no concessions under the Act been conferred”. In effect, it demands retroactive or ‘back’ taxes.

Uncertainty over how long the tax breaks will be granted for is another unresolved issue, but the Grand Bahama Chamber nevertheless advised its members to comply with the new law.

“After due consideration by the Chamber, our advice, based on the information available as of today’s date is, yes, you should apply,” the March 30 letter read.

Setting out the rationale for its advice, the Chamber divided GBPA licensees into two distinct groups - those that are Bahamian-owned, and those that are foreign-owned.

This is because only real property tax, of the three tax exemptions dealt with by the Act, is presently in force in the Bahamas. And, given that Bahamian-owned real estate and property in the Family Islands is exempt from the tax, it stands to reason that only foreign-owned GBPA licensees are potentially exposed to its imposition.

However, the Chamber letter warned that the Family Island ‘exemption’ for Bahamian businesses was “qualified”, and could be repealed by the Minister responsible for real property tax based on the Act’s warning.

“In other words, the exemption could be withdrawn at any time,” the Chamber said. “This is a real possibility as the Bahamas moves to joining such international bodies as the World Trade Organisation (WTO).”

World trade rules would likely prevent the Bahamas from discriminating between foreigners and Bahamians in terms of real property tax treatment, and the Chamber letter warned that the Government could also explore income and capital gains taxes in the future as it “seeks new ways to raise revenues’.

“Therefore, while there currently is no liability to any of these taxes, application for exemption under the Act will give protection against such taxes for a period of up to 20 years, dependent on the period for which the concession is granted on an individual basis,” the Chamber advised Bahamian-owned licensees.

As for their foreign-owned counterparts, the Chamber warned that they were “vulnerable” to the imposition of real property taxes if they did not apply, and could potentially hit with demands for a year’s worth of retroactive taxes to May 4, 2016.

“In the case of both Bahamian-owned and foreign-owned businesses, we feel that for the cost of the $100 processing fee it is an inexpensive ‘insurance policy’ against current and possible future taxation,” the Chamber letter said in advising members to apply. It emphasised, though, that a decision had to be made by each individual business.

Mr Turnquest, meanwhile, said Freeport had fallen victim to a trend where other nations had “duplicated” its free trade zone model, “expanded on it and done it better”.

Arguing that such a description could also apply to the Bahamian tourism and financial services industries, he added: “We want to reverse that and get ahead of the curve, and become an attractive investment destination again.”

Questioning whether the Government saw the Grand Bahama (Port Area) Investment Incentives Act 2016 as a revenue-raising, rather than investment-enhancing, measure, Mr Turnquest also challenged why it was targeting Port Lucaya Marketplace tenants.

He emphasised that as tenants, they had no potential real property tax liabilities under the Act, calling into question why their applications were being sought.