The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

and NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government's top labour official says web shops "don't need to put Bahamians out of work" because they are still making good profits despite the tax hikes.

John Pinder, pictured, acting director of labour, told Tribune Business that no confirmations of domestic gaming industry lay-offs had "reached my desk" prior to the new sliding scale taxation's introduction on July 1.

Dion Foulkes, minister of labour, yesterday said Island Luck was the only web shop operator to-date that had provided him with formal notice of impending staff terminations. But Mr Pinder suggested to this newspaper that lay-offs were more likely to come from smaller, less profitable operators - the likes of Asure Win and Paradise Games - rather than the market leader.

"I'll believe that the smaller houses that weren't doing too good, the one with the closing of 11 locations [Asure Win], that's more realistic than the Island Luck group because Island Luck is doing good," Mr Pinder told Tribune Business.

"It'll [the increased taxation] impact their profits to some extent, but they will still make a good profit return... They don't need to put Bahamians out of work. They're making money."

Mr Pinder added that the web shop industry's suggestions of mass staff lay-offs and location closures "was more of a public announcement" in the wake of the taxation increase.

He added, though, that the Department of Labour was preparing for the worst. "It'll be our responsibility to take the necessary precautions and register those persons in our skills bank if they're going to be unemployed and find them some work," Mr Pinder said.

Mr Foulkes, meanwhile, said Island Luck was the only web shop operator from whom he has received formal notice of staff terminations, telling this newspaper he remains hopeful "they will change their mind".

Island Luck, the Bahamas' largest web shop chain, last month warned staff to brace for up to 350 job losses after it was unsuccessful in mitigating the impact of a 184 per cent tax hike on its business model.

ASure Win has also revealed it plans to close 11 of its locations - and terminate 50 jobs - as it seeks to shed underperforming sites in a move also blamed on the Budget's tax increases. It indicated that further closures and terminations may follow once an in-depth review of its business model is completed.

Paradise Games chief executive, Kevin Knowles, has also warned his staff that redundancies and store closures may be a possibility following the government's increase in taxes for the domestic gaming sector. He advised that the web shop's human resources department will begin employee performance reviews should layoffs become necessary.

Mr Foulkes told Tribune Business: "Island Luck said that they had planned to terminate 'x' amount. A 30-day notice was given. I'm hopeful that during that 30 days maybe they will change their mind.

"We live in a democracy. It's a free enterprise system and business people will make their decisions. They have to comply with the labour laws, with the Employment Act, to ensure that everyone gets their benefits."

Mr Foulkes added: "It's the only web shop that has formally communicated with me. I'm very happy that Mr Craig Flowers has decided not to lay-off anyone. He's one of the major players in the industry. He said his interest is to preserve jobs. I'm hoping that other owners will follow his example."

The FML chief said last month that he has opted not to lay off employees because it is not known if his company will suffer loss due to increased government taxes, which includes a 5 percent stamp tax on patron deposits and over-the-counter lottery sales.

The Government has consistently argued that the web shop industry was already in the process of consolidation, and that sector operators are using the Budget tax increases as 'cover' to accelerate actions they would eventually have taken anyway.

But the web shop industry's consultants, Christiansen Capital Advisors, warned that the likely first reaction of Bahamian web shop operators to any tax increases would be to cut costs through closing marginal or unprofitable locations, resulting in significant job losses.

"The combined impact of declining revenues and a higher tax rate will undoubtedly lead to downsizing and the closing of marginally performing locations," the Christiansen study warned.

"In a first quarter 2018 performance review, the largest operator of gaming houses, Island Luck, identified 14 marginal performing locations and 26 marginally performing franchisees representing estimated gross gaming revenue of approximately $37.3 million, or 35 per cent of gross gaming revenues.

"If these new tax rates go into effect, these identified locations will almost certainly be forced to close, and as this review was conducted before these new taxes were proposed, there could be more locations forced to close as well," Christiansen added.

"Island Luck had 54 store locations and 62 franchisees in 2017. Thus, these marginal operations constitute approximately 26 per cent of Island Luck's stores, and 48 per cent of its franchisees.

"If we assume that other operators on the island have a similar ratio of poor performing locations and franchisees, that means that these new taxes will likely lead to the loss of 69 stores and 711 employees at 10.3 employees per store, and $13.5 million in wages and indirect employment of 114 indirect jobs and between $2.1 million in wages."

But the projected impact to-date has been far less than the web shop industry's own initial estimates of 2,000 job losses and 192 location closures.