The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Web shop patrons and Bahamasair passengers will be the first feel to feel the pain of tax and fee increases sparked by COVID-19's economic devastation, a Cabinet minister revealed yesterday.

Senator Kwasi Thompson, the newly-appointed minister of state for finance, told the Senate that the Government plans to finally implement the long-anticipated levy on gaming patron winnings from New Year's Day onwards.

And he argued that it was "imperative" for the Government to accelerate long overdue reform of loss-making state-owned enterprises (SOEs) such as Bahamasair and the Water & Sewerage Corporation given the combined $408m drain they have imposed on Bahamian taxpayers this year in the form of subsidies - a figure that is expected to sharply increase due to COVID-19.

Mr Thompson revealed that the Government has approved the Bahamasair Board's "recommendation to undertake, in short order, the necessary fare adjustments and operational changes that will eliminate the need for reliance on government subsidies over time. This will allow the airline to become more competitive as it pursues full cost recovery".

Similar demands, which will likely involve price/tariff increases for consumers, are also being made of the Water & Sewerage Corporation, which Mr Thompson said has not enjoyed a fee increase for more than 20 years dating back to the last century.

Underscoring the increased taxes and fees Bahamian businesses and consumers will likely have to bear as a result of the fiscal and economic blow-out created by COVID-19, Mr Thompson said the Government will start with a levy that is already on the books.

"To help counter the revenue losses, starting on January 1, 2021, the Government intends to implement the Gaming tax on winnings, passed in the House of Assembly in 2019 as part of the Gaming House Operator Amendment Regulations," he revealed.

The new winnings tax is projected to generate between $10m-$15m annually in extra revenue for the Public Treasury. While a relatively small sum in the overall fiscal scheme of things, it will certainly shrink gamblers' winnings at a time when they will be hoping to land every cent possible due to COVID-19 related high unemployment and income cuts.

The new winnings tax will see five percent paid on winnings up to $1,000, and 7.5 percent on anything greater than $1,000. Dionisio D’Aguilar, minister of tourism and aviation, said previously that just 45 percent of web shop gaming activities will attract the new patron “winnings” tax with online casino spins remaining untouched “for now”.

He added that the Government had decided to focus this levy solely on lottery/numbers operations because it was too “complicated” to calculate the winnings from online casino spinning, indicating that Bahamian gamblers had got off relatively lightly.

The minister said the comparable winnings tax rates in Jamaica and Barbados are 15 percent and 20 percent, respectively. In the US, he added that the federal tax rate was 25 percent, with state and local taxes on top of that.

Meanwhile, Tommy Turnquest, Bahamasair's chairman, declined to provide details on the nature of the "fare adjustments" and operational changes being planned at the national flag carrier. "We're just discussing with the Government when to roll them out," he added, also declining to give a date.

"I wouldn't want to say until we finalise the day we will roll them out, but it should be in fairly short order." However, some insight into what may be coming for Bahamasair passengers was given by Mr D'Aguilar in the 2020-2021 Budget debate, when he detailed recommendations from PricewaterhouseCoopers (PwC), the accounting firm.

He said then that Bahamasair was being "implored" by the COVID-19 crisis to increase revenues by $7.5m annually through the levying of "nominal" ticket price rises and baggage fees, as it had not increased fares for eight years.

Mr D'Aguilar said PwC had called for the airline to better align pricing with the cost of service on its domestic routes between Nassau and the Family Islands. A $20 per return ticket increase was recommended to boost Bahamasair's revenues by $3m per year, along with "ancillary revenue streams" that levy a charge for carrying passenger bags - a common practice in the industry.

Desmond Bannister, deputy prime minister, yesterday said the Water & Sewerage Corporation was "one of the worst" loss-making SOEs after Mr Thompson told the Senate the utility has "required significant and unsustainable outlays from the public purse for a long time".

The senator added: "This is largely as a result of policy decisions that essentially limited the Corporation from adjusting its fees for over 20 years. We will be requiring the Board to provide a plan to achieve a proper cost recovery model that allows users of the service to substantially cover the costs of operations.

"This may include - and is not limited to - adjustments in rates, while protecting those most in need. It will also likely include a shift to a monthly billing cycle for all customers. The Corporation will also be required to pursue operational efficiencies by improving use of technology and rationalising its cost base."

With consumers now put on notice about forthcoming water price increases, Mr Bannister said: "We are looking at how we can make all these state-owned enterprises (SOEs) more efficient, and how we can drive costs down.

"The Water & Sewerage Corporation is one of the worst. It has too many employees in there to start with, too many people working in there. The tariffs are out of date. It's an enterprise that is losing money. We [the Corporation] pay more for water than we charge consumers. It's ridiculous. What we get from consumers doesn't come close to covering the cost of water.

"As a consumer you are getting the first 3,000 gallons of water free of charge and that is not encouraging responsible conduct. It's just been out there too long. There's no place in the world you get the first 3,000 gallons free of charge; nowhere in the world."

Mr Bannister declined to give timelines for when the utility's Board would have completed the cost recovery plans and other objectives cited by Mr Thompson. While "a large international accounting firm" had been engaged to provide estimates on increasing revenues and cost savings, Mr Bannister declined to identify it or give figures.

"The Board is charged with getting everything in place," he said. "There are time lines I'm not at liberty to discuss. There are several phases and timelines for each phase. We are going to come to Parliament first and explain what is happening first, and if we have to adjust the tariffs that is something Parliament will have the chance to debate.

"We are going to require much more efficiencies out of all these SOEs. There are any number of those the Bahamian people ought to, and will, demand more efficiency from."

The Government's Fiscal Strategy Report, unveiled yesterday, promised to "accelerate" SOE reforms. It said: "The Government has targeted $120m in cost savings across the medium-term horizon from the SOEs to achieve a meaningful reduction in the subvention to these entities which approximated $408m for 2020/2021.

"In 2019, the Government engaged the assistance of a firm (PwC) to conduct a review of several SOEs for the purpose of identifying cost savings through either legislative, regulatory or institutional initiatives.

"The exercise has produced several recommendations that are being considered by the Government to achieve this objective, including the introduction of properly phased-in cost recovery measures slated to commence by mid-2021 for Bahamasair and the Water & Sewerage Corporation.

"Ongoing developments in the aviation sector, relative to the introduction of overflight fees to support the delivery and long-term development of air navigation services in The Bahamas, will also provide for the elimination of the annual subventions provided to the Civil Aviation Authority of The Bahamas, budgeted at $15.3m for 2020-2021."