By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday accused of being “downright ignorant” on Freeport’s business environment, after a Value-Added Tax (VAT)-related blunder caused “widespread panic” among the city’s private sector.

Fred Smith QC, the Callenders & Co attorney and partner, said the Christie administration appeared “completely confused” about VAT, taxation and the Hawksbill Creek Agreement after John Rolle, the financial secretary, mistakenly dropped “a bunker buster” on how the new tax would apply to Freeport.

The Ministry of Finance moved swiftly into damage control. issuing a press statement in the early hours of Thursday morning to correct Mr Rolle’s initial, mistaken assertion that 7.5 per cent VAT would be levied on Freeport’s ‘bonded goods’ regime.

This message, delivered at a Wednesday presentation to 140 private sector executives that was organised by the Grand Bahama Chamber of Commerce, caused immediate panic in Freeport’s business sector, which feared the very foundation of their existence was crumbling.

Levying VAT on Freeport’s ‘bonded goods’ regime would essentially have meant the new tax applied to goods sold by one Grand Bahama Port Authority (GBPA) licensee to another.

This not only contravenes the Hawksbill Creek Agreement, and would likely have resulted in a legal challenge if correct, but is inconsistent with the VAT Act, the recently-issued VAT Guidance Notes and Freeport’s existing Customs Duties-exempt status.

Quickly realising the gaffe, the Ministry of Finance, in a statement yesterday morning, conceded the mistake and sought to ease the fears of 3,500 GBPA licensees.

It admitted that Mr Rolle told the Chamber meeting that goods sold between two GBPA licensees would be subject to VAT, and that “it would only be excluded based on the amounts that should have been collected by Customs”.

“I want to clarify that this is not the case,” Mr Rolle said. “The intended treatment of these transactions is exactly as they are described in the Guidance notes for the Port area and in the legislation.

“Sales of these items between licensees, where they are considered consumables, are not subject to VAT.”

The Ministry of Finance added that GBPA licensees would only have to seek a VAT refund from Customs on goods that were shipped to them by Bahamian firms located in other islands.

This is because these companies would not distinguish Freeport from other suppliers, and would levy VAT on the transaction regardless.

“As a consequence, and in such circumstances, Port licensees would have to seek direct refunds from the Government,” Mr Rolle said.

He added that GBPA licensees would not have to pay VAT on imports that would be used to produce other goods and services - a concession to Freeport’s industrial and manufacturing regime.

It remains, though, to be seen whether the Ministry of Finance’s clarification is enough to prevent any long-term or lasting damage when it comes to VAT information dissemination, and attitudes towards the new tax.

Tribune Business was given an insight into this via phone calls and e-mails sent to this newspaper late Wednesday afternoon.

“John Rolle just skewered Grand Bahama and Freeport in the heart,” one businessman, with knowledge of the Grand Bahama Chamber meeting, told Tribune

“At his first meeting, he absolutely dropped a bunker buster on a gathering with 140 business people. I would say he dropped three grenades and a bunker buster at the Chamber VAT meeting. Last night, he counteracted himself and they had to issue a retraction.”

Mr Rolle and the Government’s Freeport VAT team are understood to have delivered the correct message at a later meeting with the Grand Bahama public, but many remain unimpressed,.

“Robert Myers is correct,” one businessman said on condition of anonymity. “They’re throwing out grenades, and the confusion in the private sector is only the outfall of the confusion they’re feeding out.”

A good sense of the consternation, prior to the Ministry of Finance’s clarification, came from a businessman’s e-mail to Tribune Business, which said: “This has now become pure insanity.

“They have dropped a bomb on Freeport in that VAT will be paid on ‘bonded to bonded’ and duty paid sales in a collect and remit, with licenses claiming refunds under whatever criteria the Government decides.

“Duty will shift to being assessed on first cost only, but computer systems will still have a CIF cost to assign and VAT will be based on CIF.

There is not a computer system that exists that can go back and forth like that, nor does it take into consideration the variable costs on a given product shipment by shipment. This does not follow/require standard accounting practices; this requires Voo Doo.”

Another person distinctly unimpressed with the Ministry of Finance ‘back pedalling’ was Mr Smith: “The Government is completely confused about VAT, tax, Customs Duties and all things related to the Hawksbill Creek Agreement,” he told Tribune Business.

“They are downright ignorant of the business environment in Freeport under the Hawksbill Creek Agreement, and I demand that the Government stop constantly picking on the business community and creating so much uncertainty that business flees from Freeport instead of fleeing to Freeport.”

Mr Smith also pledged that he would be among the first GBPA licensees to sue the Government if it sought to follow through with plans - first revealed by Tribune Business - to levy VAT on services transactions between them.

“VAT is designed as a substitute for Customs Duties,” he told this newspaper. “Customs duties are not payable in Freeport until 2054.

“Therefore, VAT cannot be applicable in Freeport because Customs Duties are not applicable in Freeport until 2054.

“It is a red herring to speak about VAT being applicable to anything in Freeport, and I will be one of the first licensees to sue the Government for a declaration that VAT does not apply to anything in Freeport.”

However, one executive present at Wednesday’s Chamber meeting took a more sympathetic view of events, telling this newspaper that Mr Rolle should not be “skewered” over the error.

“I think it was a context issue rather than a mistake of fact,” the executive, speaking on condition of anonymity. “Based on the uniqueness of our regime in Freeport with the Hawksbill Creek Agreement, he might have confused things.”

Commending Mr Rolle and the Government for correcting the error, the source added: “The point raised from the floor was this could very well be the death knell for retail/wholesale in Grand Bahama.”