By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known QC yesterday blasted the Government’s decision to prevent small Freeport businesses from accessing the Value-Added Tax (VAT) ‘Flat Rate’ scheme as an attempt to secure data it had no legal right to obtain.

Fred Smith QC, the Callenders & Co attorney and partner, suggested to Tribune Business that the Ministry of Finance was seeking to use the ‘Flat Rate’ method for VAT liability calculation as leverage, or a ‘trade off’, to obtain long-sought ‘bonded goods’ sales reports from Grand Bahama Port Authority (GBPA) licensees.

And he slammed as “a red herring” the Government’s explanation that a lack of financial data on companies’ revenues/sales prevented it from extending the ‘Flat Rate’ scheme to Freeport, branding the move as “discriminatory”.

The Ministry of Finance, in explaining why the ‘Flat Rate’ scheme was not being extended to Freeport, said its decision stemmed from the lack of information on GBPA licensees’ VAT ‘input’ payments as a result of the Hawksbill Creek Agreement.

Unlike businesses elsewhere in the Bahamas, GBPA licensees are ‘exempt’ from paying VAT on goods purchased in transactions involving other licensees.

This, the Ministry said, makes their VAT ‘input’ structures different from all other Bahamian businesses, with the result that the assumptions underpinning the 4.5 per cent ‘Flat Rate’ scheme do not apply to Freeport.

Businesses elsewhere in the Bahamas, with annual turnovers of between $100,000-$400,000, can calculate their VAT payments to the Government by multiplying their revenues by this percentage, but not their Freeport counterparts.

And the Ministry of Finance release seemed to suggest that GBPA licensees, if they wanted to access the ‘Flat Rate’ scheme, needed to provide it - via Customs - with monthly reports on its ‘bonded’ - as well as ‘duty paid’ - sales.

“The Ministry of Finance does not have historical data yet to tailor a flat rate for Grand Bahama port licensees,” it said in a statement.

“It requires information disclosures on the average breakdown of sales and purchases of supplies that are bonded and supplies that are not bonded.”

This links directly into another ongoing battle between the Government and GBPA licensees that is currently being played out in the Supreme Court, namely over whether the latter should be submitting monthly ‘bonded goods’ sales reports to Customs.

Kelly’s (Freeport), one of the city’s major wholesalers/retailers, is currently awaiting a Supreme Court judgment on this matter, and Mr Smith, who is acting for the company, questioned whether the Ministry of Finance was seeking to “prejudice” the ruling by its ‘Flat Rate’ statement.

Freeport’s ‘over-the-counter’ bonded goods regime allows GBPA licensees to sell goods duty-free (bonded) to fellow companies within the Port area for use in their own business.

But any sales to a consumer or household do attract duty, and these have to be submitted in a report to Customs - together with the full tax owed - to the Department by the 15th of the following month.

While post-paid duty sales have to be reported, there has never been a similar requirements for so-called ‘bonded’ sales. The fear is that the Government is using its withholding of the ‘Flat Rate’ scheme from Freeport to obtain these ‘bonded goods’ sales reports.

“I am disappointed that yet again, in breach of the Hawksbill Creek Agreement, specifically clause 2 (28), the Government is discriminating in the ‘Flat Rate’ VAT opportunity being given for the convenience of businesses outside Freeport,” Mr Smith told Tribune Business.

“Once again, licensees of the Port Authority are being illegally prevented and discriminated against by the central government.

“Additionally, the reference to the absence of financial data to inform the Ministry is a red herring, and it is an attempt to do indirectly what the Government cannot do legally and directly.”

Many private sector observers, not just in Freeport, believe the Government is using VAT to obtain information on just how much economic/business activity is going on in this nation, having previously possessed little to no data on the subject.

And some are interpreting the nature of the information sought by VAT registration forms as a clear signal that the Government’s ultimate intention is to introduce an income, or corporate income, tax in the Bahamas.

Mr Smith, meanwhile, said the Ministry of Finance’s comments “fly in the face” of the verdict Kelly’s (Freeport) is seeking, namely whether it and other GBPA licensees have to submit monthly ‘bonded sales’ reports.

“There is no right of the Government to have any financial information on the income and expenditure of licensees operating under the Hawksbill Creek Agreement,” the noted QC told Tribune Business.

“I can’t understand why successive governments can’t simply respect the Hawksbill Creek Agreement. This evidences a deliberate, overarching disrespect for the rule of law in the Bahamas, and I cry shame on this administration.”

Mr Smith added: “This will only continue to enure to the detriment of a confident business environment in Freeport. The economy will remain anemic.

“It is poorly thought-out, ill-conceived, discriminatory and continue to obstruct and damage business in Freeport.”