BAHAMAS: Freeport ‘Tax Grab’ Fear On Exposed Incentives.

As published on tribune242.com, Wednesday 8 September, 2021.

An ex-Grand Bahama Chamber of Commerce president yesterday said it was “striking” that the major political parties have seemingly ignored a problem deterring “sensible investors” from Freeport.

Kevin Seymour told Tribune Business that both existing and potential investors, and foreign and Bahamian-owned businesses, are all effectively “in limbo” due to the Government’s failure to enact legislation to replace the Grand Bahama (Port Area) Investment Incentives Act 2016 passed by its Christie administration predecessor (see letter on Page 2B).

While that Act was repealed by the Minnis administration in October 2017, shortly after it was elected to office, it has neglected to draft and enact a replacement that would ensure the continuation of key tax breaks for Grand Bahama Port Authority (GBPA) licensees is still protected by law.

These incentives include exemptions from business licence fees, real property tax, income tax and capital gains tax, and they have remained in effect for the last four years - but only because of the Government’s “good graces” or continued willingness to allow this.

Until this is enshrined in statute law, Mr Seymour said Freeport’s business environment will continue to be plagued by uncertainty. And, facing a “bare” Public Treasury, a “capricious administration” voted into office on September 16 has the ability to potentially introduce some or all of these taxes in Freeport given the absence of legal protection.

Should this occur, GBPA licensees will be exposed to double taxation as they would be paying business licence fees to the Government and a separate one to the Port Authority, along with real property tax for Nassau and service charges to Freeport’s quasi-governmental authority.

Warning that the loss of these tax breaks would undermine Freeport’s status as a free trade zone, with the Hawksbill Creek Agreement still having around 33 years to run, Mr Seymour said the uncertainty and fears associated with this issue was also a likely explanation for why no major investor had been attracted to the city in the past “four-and-a-half years”.

However, neither the Progressive Liberal Party (PLP) “blueprint” nor the Free National Movement (FNM) manifesto addresses the problem despite the latter, in particular, making multiple promises and commitments on how it plans to revive Freeport and Grand Bahama’s economy.

“I find that striking,” Mr Seymour told Tribune Business. “It’s something that’s actually going to impact our ability here in Grand Bahama to attract investors. No sensible investor is going to come here with that hanging over their heads.

“It has everyone, I can tell you, in limbo. That is a heavy issue. I know we have some other problems right now in terms of COVID-19 and the rest of it, but that is a key issue. You cannot talk about economic without addressing that structural problem.

“I think this is an issue that needs to be at the top of any of these parties’ agenda. It has to be top of mind for any of the parties. Let’s face it; nothing has happened here for the last four-and-a-half years. If somebody wants to chalk that up to Dorian, and then COVID-19, that’s not going to fly. Prior to that things were happening, but nobody is going to be looking at Freeport until this structural issue is dealt with.”

The repealed Grand Bahama (Port Area) Investment Incentives Act 2016 was met with furious opposition and resistance from many in corporate Freeport when it became law. This was because it would have forced all the GBPA’s 3,500 licensees - bar the Port Authority, its Hutchison Whampoa partner and their business interests - to apply annually to the central government in Nassau for the renewal of key tax breaks.

The former Christie administration sought to tie their grant/renewal to the amount of investment involved and companies avoiding job cuts by maintaining their existing workforces for five years. It also threatened to impose financial penalties on businesses who failed to live up to the promises they made in return for receiving the renewed tax breaks.

The 2016 Act was also seen as an attack on Freeport’s founding treaty, and an attempt to undermine the Hawksbill Creek Agreement, by forcing GBPA licensees to apply to Nassau for benefits and rights this already provided them.

However, Mr Seymour argued that it still preserved the legal basis underpinning the tax breaks’ continued existence, with GBPA licensees able to secure the same 20-year extension as the GBPA and Hutchison Whampoa if they applied and met the then-Christie administration’s qualifying criteria.

“For those who will say: ‘Why are you making noise about this? Don’t businesses continue to enjoy those incentives?’, my response is: ‘Yes’. ‘What’s the problem?’ The problem is you could have a capricious government come in and, because the Treasury is bare, assess some additional taxes on businesses in the Port area, and take back any green shoots we may be having in Grand Bahama,” Mr Seymour said.

“I really don’t want to focus on the negative part of this. I want to say: ‘Hey guys, fix it.’ We still have about 33-odd years left in the Hawksbill Creek Agreement. Please, let’s fix it.” In the absence of legislative redress, he warned: “The existing businesses here are going to have to be giving second thoughts as to whether this is the place they want to do business.

“The legacy businesses would have made a decision to do business here on the basis and understanding those incentives would be extended. That is where we find ourselves right now, and I am a little surprised this is not higher up on the agenda. I see candidates talking about how many basketball courts they have put in their constituency. That’s important, but does not rise to the level of importance identified here.”

Pointing out that the issue goes “way back”, Mr Seymour told Tribune Business: “We anticipated that the incentives would be expiring, and the former administration tried to deal with it through the passage of that legislation. I don’t want to get into whether it was good or bad; the point is at least it preserved those rights in terms of the Act, and no one was left dangling wondering whether they would have the security of the law behind the Government’s promises.

“Without having legislation to back it, it is really not worth it. People change their minds, and if one administration felt one way about it, without the backing of the law another administration can come in and say there’s nothing there.”

Mr Seymour is far from the only person concerned by this issue. Carey Leonard, the former GBPA in-house counsel, earlier this year urged the Government to finally give Freeport’s private sector the certainty it urgently needs by fulfilling a key 2017 campaign pledge to replace the Christie-era investment legislation.

He added that the city’s business community was becoming increasingly nervous that a Philip Davis-led PLP administration might seek to revive the Grand Bahama (Port Area) Investment Incentives Act 2016.

“Why invest in the Port area if you have to pay service charges as well as real property tax? That’s double taxation. This government has had three-and-half years to fix that and they haven’t. It’s like the sword of Damocles over one’s head. If I’m at the discretion of the Government of the day, why would I bother to invest?” Mr Leonard said.

Replacing the Christie administration’s legislation topped the Free National Movement’s (FNM) list of 2017 campaign pledges for Grand Bahama. It said: “To jumpstart and fix the Grand Bahama economy so that we may maximise and realise new, substantial sustainable development benefits the FNM will.... repeal and replace the Grand Bahama (Port Area) Investment Incentives Act 2016 to ensure that all licensees receive equal treatment under the law.”

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