Ex-minister 'totally opposed' to web shop taxation hike

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The ex-Cabinet minister who oversaw the web shop industry's legalisation yesterday queried why it was being hit with "destructive" taxation despite meeting all its obligations to date.

Obie Wilchcombe, the former minister of tourism, told Tribune Business he was "totally opposed" to "penalising" the sector with a huge taxation increase, and attacked the Minnis administration's "retrogressive" plan for "taking the country backwards".

Backing the domestic gaming industry's arguments, Mr Wilchcombe said it was one of the few government revenue sources to have "proven to be a stellar performer" since the 2015 legalisation.

He argued that the government's approach to the web shops had been clouded by both politics and an instinctive dislike of the gaming activities it facilitates.

While calling no names, Mr Wilchcombe said the Cabinet contained several ministers who had been opposed to the web shop sector's legalisation prior to taking public office.

And he suggested that some in the Free National Movement (FNM) believed the sector's removal from the "informal economy" had created a group of wealthy "political players" able to provide the Progressive Liberal Party (PLP) with significant financial support.

Vehemently denying this was the case, or that it motivated the former administration's policy towards the web shops, Mr Wilchcombe said of the proposed "sliding scale" tax structure: "totally opposed to it. It takes us backwards as opposed to taking us forwards.

"What I find incredible is that the Minister [K P Turnquest] did not stand up and say they're not paying paying their taxes. He did not have reason to penalise them because they are paying."

Mr Wilchcombe added that Mr Turnquest, in his mid-year Budget communication, identified gaming - together with Value-Added Tax (VAT) and the Road Traffic Department - as three areas that had produced revenue growth during the 2017-2018 fiscal year.

"They have been proven to be stellar with their performance, and are living up to their obligations," he told Tribune Business. "Why target them, and put in taxation that destroys them and sends them underground? It's destructive, and against the intent behind their legalisation. Why take this approach? Why seek to penalise them and seek to damage what exists today?"

Mr Wilchcombe hit out after research commissioned by the web shop industry suggested that the Government's aggressive double-digit tax hikes will force the sector to cut 2,000 jobs and 75 per cent of its locations.

The study, conducted by 10-year gaming industry veteran and accountant, Gavin Hamilton, argued that the Government's tax take from the increased rates would be $35 million less than anticipated due to one-third of the sector's customer base shifting to 'underground' gaming,

The Government is projecting that it will double its total gaming revenues to just over $70 million in the 2018-2019 Budget, with virtually all this increase generated by the new domestic gaming tax structure. The Hamilton study, though, suggests there will be no increase in the sector's contribution to the Public Treasury - and it might even decrease.

"We sat and had long, arduous meetings with the gaming industry," Mr Wilchcombe recalled. "We arrived at a number to tax the industry, as we did with the casinos.

"We arrived at an arrangement, and they indicated that the investment they'd made would take a while to grow, and as it grew the country would be better off from taxes and other revenues."

He pointed to the 2 per cent of turnover that web shops must currently contribute to community causes, including sports and cultural activities, as something that was generating $2-$2.5 million per year to benefit wider Bahamian society when the Christie administration was voted out of office in May 2017.

Besides the 2 per cent 'community contribution', the present tax structure requires web shop operators to pay 11 per cent on taxable revenue or 25 per cent of EBITDA (earnings before interest, taxation, depreciation or amortisation), whichever is greater.

However, under the 2018-2019 Budget's proposed new 'sliding scale' they will pay:

  • Up to $20 million in revenue, a rate of 20 per cent.

  • Between $20 million and $40 million, a rate of 25 per cent.

  • Between $40 million and $60 million, a rate of 30 per cent.

  • Between $60 million and $80 million, a rate of 35 per cent.

  • Between $80 million and $100 million, a rate of 40 per cent.

  • Over $100 million, a rate of 50 per cent.

And, in a nasty twist as far as web shop operators are concerned, the Government has also imposed new taxation on gamblers themselves rather than the sector. Patrons, from July 1, will have to pay a 5 per cent Stamp Tax on both their web shop deposits and non-online games/digital sales.

Mr Wilchcombe yesterday suggested the Government's approach to the web shop industry may have been clouded by political overtones, especially the perception that its ever-grateful operators would be substantial financial contributors to the PLP.

"Many of them sitting in office don't like the gaming industry, and were against its legalisation," he told Tribune Business. "One thought it was going to empower then to be political players in conjunction with the PLP.

"No. The reality of it is these are people who have moved along the lines and demonstrated they can be professionals. It's something where those in opposition to it believed we were seeking to empower those who should not be empowered."

Members of the Minnis Cabinet have made clear their dissatisfaction with the domestic gaming industry's present regulatory structure. Dionisio D'Aguilar, who currently has ministerial responsibility for the sector, gave signals that he believed increased taxation was appropriate within months of becoming minister of tourism and aviation.

Mr Wilchcombe, meanwhile, backed web shop industry arguments that the tax hikes, which the industry argues range from 238 per cent to 453 per cent, would drive the sector and its patrons back into the 'underground' economy that existed pre-2015.

He added that this would attract renewed scrutiny of the Bahamas by the international bodies that have 'blacklisted' this nation's financial services industry for perceived regulatory weaknesses.

The ex-Cabinet minister argued that the Government should instead focus on ensuring web shops live up to their present regulatory/taxation obligations, and operate in accordance with global best practices.

"They play a major role in providing employment. I'm very concerned about that," Mr Wilchcombe said of the projected 2,000 job losses. "We have to appreciate we have a high level of unemployment now, and they provide more jobs than the casinos.

"If you put them in the unemployment line, you're creating more problems. The approach is absolutely and totally wrong. If you are committed to raising tax rate by 2 per cent or whatever, why couldn't you have discussed it with the gaming houses.

"These are businessmen, reputable businessmen. This is wrong. It sends a wrong message to the country, and is destructive to this industry which is creative and thinking outside the box. It's legal, and there's no reason to penalise them having arrived where we are now."