The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Freeport’s new ‘tax breaks’ regime must be repealed to save a city that “is dying and on its last legs”, a prominent QC urged yesterday.

Fred Smith QC, the Callenders & Co attorney and partner, said the Grand Bahama (Port Area) Investment Incentives Act 2016 was merely the latest incident of Freeport being thrown into “economic turmoil” by ill-advised government policy.

Slamming the Christie administration’s failure to properly consult with, and inform, Grand Bahama Port Authority (GBPA) licensees on the Act’s implications, Mr Smith called on it to reverse course and simply extend Freeport’s expired tax breaks until 2054 - when the Hawksbill Creek Agreement ends.

Confirming that he was likely to take legal action on licensees’ behalf over the new Act, he added that Freeport’s business environment was being “tampered” with by persons “who don’t have the foggiest idea” of the city’s reality.

The Government yesterday provided some modest relief to the 3,500 GBPA licensees, confirming in writing that the deadline by which they must apply for renewal of their real property tax, capital gains and income tax exemptions has been extended by one month - from March 6 to April 4, 2017.

“The Office of the Prime Minister and Ministry for Grand Bahama, in collaboration with the Bahamas Investment Authority, wish to advise that the date for submission of applications has been extended to 4 April, 2017,” a Government notice stated, referring to the Grand Bahama (Port Area) Investment Incentives (Extension of Time for Applications) Order 2017.

The Government, though, has yet to answer numerous private sector concerns and questions over the Act and its accompanying regulations, meaning that uncertainty and confusion continue to cloud Freeport’s business climate.

“Once again, Freeport has been thrown into economic turmoil and confusion by the central government in Nassau,” Mr Smith told Tribune Business, “which failed to properly consult with licensees or resident owners, foreign and Bahamian, who will be affected.

“I continue to urge both the PLP and FNM to appreciate that the Freeport business model is an artificial construct, and tinkering and tampering by people who don’t have the foggiest idea of Freeport’s economic reality, continues to hurt and prejudice the Freeport business community.”

Mr Smith said business and investment typically flourishes in an environment where ‘the rules of the game’, namely taxation and regulation, were simple and predictable.

Arguing that the Act and its regulations, especially the ‘incentives renewal’ application form, took the city’s economy in the opposite direction, Mr Smith said: “Freeport is dying, and has been on its last legs for some time.

“The Grand Bahama (Port Area) Investment Incentives Act needs to be repealed. A sensible Government simply needs to extend all the tax benefits until 2054, so the business regime in Freeport is simple and predictable for the long-term.”

Mr Smith confirmed that he was “currently reviewing” the Act with a view to initiating legal action on behalf of GBPA licensees, especially over its ‘discriminatory’ nature and the 20-year ‘blanket’ tax break renewal granted to the GBPA and Hutchison Whampoa.

He described the latter’s preferential treatment as “a slap in the face” to all other licensees, and added: “It continues to baffle me how the bureaucrats and politicians in Nassau continue to pretend licensees don’t matter.”

Mr Smith’s position yesterday received support from Dr Gilbert Morris, the academic who was prominent in Bahamian affairs a decade ago, and still maintains close contact with this nation’s intellectual circles.

Dr Morris, writing on his Facebook page, said that while the Christie administration has a “true, noble desire” to facilitate Freeport’s economic growth, the new Act was “absolutely the wrong way to go”.

Describing the Hawksbill Creek Agreement as the “finest development agreement in the world”, Dr Morris cited three reasons why the Government’s approach was wrong, including the Act’s “anti-incentive” nature.

“Everywhere in the world where economies are growing, governments are eliminating red-tape,” he wrote.

“In this case, the very people who are disadvantaged by the economic doldrums in Freeport, are hit again by a regressive, over-burdening anti-competitive approach - even if well-meaning - infused with many confusions, thus limiting options for operations and investments for existing licensee businesses.”

Dr Morris added that the extra cost, time and bureaucracy associated with GBPA licensees now having to apply to Nassau for key tax breaks, and the uncertainty over whether they will be granted, “also makes investing in the Port area less attractive”.

From a legal perspective, Dr Morris added that the Act was “wrong in constitutional terms” because the devolution of investment incentives under the Hawksbill Creek Agreement was intended not for the GBPA’s benefit, but to enable it to “empower” licensees.

He also pointed to the ‘discriminatory’ provisions in the Act, an issue already raised by Mr Smith, which potentially allow the Investments Board and the responsible minister to grant the tax incentives to one licensee but not another.

“On the other hand, for any minister of government to make a distinction between licensee applicants for the tax benefits would require so much bureaucratic engagement, not to mention time, as to destroy any possible or conceivable actual incentive,” Dr Morris wrote.

Chief among the key unanswered question is whether the Act ‘locks in’ all licensees to maintaining existing staffing levels for five years in return for renewal of these incentives.

The Act suggests that companies which fail to meet this obligation face financial penalties, including the loss of some or all of their ‘tax breaks’, and the possibility that the Government may seek to ‘claw back’ these foregone taxes retroactively.

He added that the Act was also “inconsistent with both the letter and spirit” of the Hawksbill Creek Agreement, and concluded: “I appeal to the Government to withdrawal this initiative absolutely and completely.”

Dr Morris’s intervention will further increase the growing pressure on the Government to reverse course in its bid to exert greater control over Freeport’s investment incentives regime.

Mr Smith said a combination of the 2004 and 2016 hurricanes, resort closures, ill-considered government policies, global economic forces and the previous in-fighting at the Port Authority had undermined Freeport’s economy.

Alluding to the impact on specific industries, he added: “I know that in the legal fraternity, conveyancing, corporate and other transactional work is almost non-existent. Were it not for litigation, some firms would no longer even be operating.

“I also note that the real estate agents are suffering, the architects are suffering, the engineers are suffering, and the surveyors are suffering. Everything to do with foreign direct investment (FDI) is suffering.”

Mr Smith said the Memories closure had left hundreds of Bahamians unemployed, and added: “People are living in cars, people don’t have electricity and water, no cable for entertainment. People don’t have money for the fundamentals. The economy is really hurting in Grand Bahama.”