The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official last night warned that Dorian-related tax breaks “cannot go on indefinitely” in their present form as they are costing the Public Treasury “probably $40m-$50m per annum or higher”.

Simon Wilson, speaking prior to tomorrow’s expiration of the existing Special Economic Recovery Zone (SERZ) order for Abaco and Grand Bahama, told Tribune Business a “rebalancing” more than three years after the Category Five storm struck is now necessary because New Providence taxpayers and those on other islands cannot “cross-subsidise” these concessions for ever.

Asserting that the tax revenue foregone, in a bid to speed up both islands’ recovery, is “significant” and “not inexpensive”, he added that the government was also concerned about the SERZ orders being abused for tax evasion, fraud and other illicit purposes at a time when the Public Treasury needs every cent it can get due to the precarious fiscal position.

The Government indicated more than two months ago that it was seeking to move away from the “blanket” tax exemptions, granted in September 2019 in Dorian’s immediate aftermath, to a process where concessions will have to be applied for and approved on a case-by-case basis. Mr Wilson last night gave no details on the mechanism that will be used, or how it will operate, while reiterating that this remains the Davis administration’s objective.

However, Roscoe Thompson, head of the Marsh Harbour/Spring City Township, yesterday voiced concerns to Tribune Business that moving to such a case-by-case system will expose the process to “political favouritism”. He, in common with other Abaconians, argued that the present tax breaks structure needs to remain beyond December 1 as the island lost a year-and-a-half of reconstruction time to the COVID-19 pandemic.

Mr Wilson, though, pledged that “anyone who has a valid” claim for tax relief to assist Dorian-related reconstruction will still be “honoured” from this Thursday onwards. “The best way to put it is if you have a valid claim for Dorian damage it will be honoured,” he told this newspaper.

“So what some folks have done, because of shipping delays and so forth, is they have come to us in advance and said they have purchased supplies but, because of supply chain issues, they are going to arrive after December 1. We’ve accommodated those persons. In Abaco I think there’s a fair few, but we’ve accommodated them.

“They came in, they produced their information and said they’ve purchased this, but because of the supply chain they’re not going to arrive until next year, January and so forth. That’s not a big issue. We’ll accommodate those persons.”

However, Mr Wilson said the Government had to guard against potential “abuse” of the SERZ Orders such as persons using the tax breaks to lower the cost of kitchen renovations rather than for rebuilding/reconstruction purposes. “That’s what we don’t want,” he explained.

“To be quite honest, the SERZ Order, the cost associated with that is significant. It is not inexpensive. When you do these types of Orders, what you are doing is a form of cross-subsidisation. The persons in New Providence are actually paying for that. That’s acceptable in the immediate aftermath of the storm, when everybody has to chip in to make things better, but three years later it’s really unfair. We’ve just got to find a way to rebalance it. It cannot go on indefinitely.”

Asked how much tax revenue has been foregone by the Government under the present SERZ Order and its predecessors, Mr Wilson replied: “I would suspect, looking at the overall Department of Inland Revenue numbers, comparing pre-SERZ and after SERZ, I would not be surprised if it was probably at $40m-$50m per annum or higher, actually.” That would imply total Dorian-related tax concessions worth around at least $150m have been granted over the last three years.

Michael Halkitis, minister of economic affairs, first signalled the Government’s new direction at the Abaco Business Outlook conference when he asserted that the present wide-ranging concessions regime was “not optimal” and cannot “go on for ever”, hinting it may switch to a framework where tax breaks were granted on a case-by-case application basis.

The Davis administration feels the existing SERZ is giving away too much revenue in tax breaks. It reimposed VAT on construction services earlier this year, with the Ministry of Finance stating at the time that concessions were being granted to wealthy second homeowners who did not need them to rebuild properties that were fully insured to their replacement value. Essentially, the view was such homeowners were getting VAT and duty-relief twice.

Ministry of Finance officials also subsequently said the SERZ and related tax breaks were being abused for tax evasion and other illicit purposes, with vehicles and other expensive items imported using the VAT and duty exemptions turning up at Potter’s Cay in Nassau and other locations outside the Dorian hit areas.

However, Abaco residents and businesses have frequently pleaded with the Government to extend the existing SERZ order beyond tomorrow’s end given that the island’s rebuilding from a storm estimated to have inflicted $3.4bn in total loss and damages will likely take between five to ten years. A similar timeframe, and sentiments, have been voiced by persons in Grand Bahama - especially in the island’s east.

Mr Thompson yesterday said “there’s no confirmation or clarity” on what will replace the present SERZ structure from tomorrow onwards, especially on what documents persons and businesses will have to provide to secure tax exemptions and who they must be submitted to. The Marsh Harbour/Spring City township head said persons were being told they have to get approval from a “SERZ Office” even though no such entity exists.

“I’m disappointed. That’s me, and I know a lot of other people are too,” he told Tribune Business on the Government’s position. “I think it will close down a lot. A lot of Abaconians feel disenfranchised, a little perturbed, a little upset. We thought we would get a little longer. This government, during election time this was one of their campaign promises, and they’ve gone back on it.

“It’s only been three years since Dorian, and we lost a year-and-a-half to COVID. A lot of people have not had the funds and financing to rebuild. Now people are finally getting the money, but can they still rebuild or bring in a car they had approval for in 2020 but did not have the means to do then?

“It’s really going to hurt the economy. They’re doing it to limit what the second homeowners get, but you can still give blanket duty and VAT-free to help more people but better police it. You don’t have to go to a case-by-case basis. I believe it’s a way of getting rid of the SERZ and not extending it. It’s going to hinder Abaco big time.”

Mr Thompson argued that non-renewal of the present SERZ structure will also push persons to acquire building materials, appliances, furniture, fixtures and equipment from abroad rather than through local retailers. He pointed out that non-profits such as Ger3 (Global Emergency, Relief, Recovery) were still helping to construct homes on Abaco and buying materials locally rather than overseas.

Another Abaco businessman, speaking on condition of anonymity, echoed Mr Thompson’s concerns over “political favouritism” by pointing out that a case-by-case approvals system would leave the granting of Dorian-related tax breaks open to “subjectivity” rather than “available to all”. They, too, were unaware of what will replace the existing SERZ Order.

“There’s a lot of angry people here, a lot of angry people,” they said. “It’s going to be a lot harder, if not impossible, for people to rebuild. It’s another nail in the coffin of Abaco courtesy of Nassau.”