'Unfair' to tax web shops into losses


Tribune Business Editor


The government should not force the web shop industry out of business through the imposition of onerous taxation, a top accountant is arguing.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, told Tribune Business that it was “unfair for any business” - whether it was the domestic gaming industry or other sectors - to be driven into a loss-making position by government taxation.

Reiterating that the resulting job losses and business closures would be counterproductive for both the government and wider Bahamian society, Mr Winder said: “These taxes should not result in the gaming operators incurring losses.

“No business should be incurring losses because of taxation, and the government should put in some kind of floor [ceiling] for the numbers houses as well as those paying business licence fees. Taxes should not go beyond this level because it results in losses for these industries.

“It’s unfair for any business if government taxes generate losses,” he continued. “We’re looking to encourage business, and no business will be around for long if it incurs losses. The government has to be sensitive to this, for if they go out of business that will result in higher unemployment and the government will not be able to accomplish some of the things it wants to accomplish.”

Mr Winder’s comments are likely to be seized upon by web shop operators as additional ammunition for their intensifying lobbying campaign against the new “sliding scale” tax structure the government plants to impose on the sector.

Neither side has shown any sign of shifting their position in the escalating row, with the domestic gaming sector warning that 2,000 jobs will be lost and 75 percent of web shop locations forced to close if the Minnis administration follows through with its plans. The seven-day deadline for the government to respond to the industry’s concerns expired on Thursday, opening the door to make good on its threat to initiate legal action to block the tax hikes.

The government, for its part, is arguing that the web shops must contribute more through taxation to offset the social costs they impose on society through the redistribution of wealth from the many to the few.

It believes that the industry’s effect on Family Island communities, in particular, must be redressed given the sums of money it believes are being sucked out to Nassau. And the government believes it has backing from a significant number of Bahamians who feel the web shop industry should never have been legalised in the first place.

The Bahamas Gaming Operators Association (BGOA), the sector body, yesterday seized on comments made by Marlon Johnson, acting financial secretary, as evidence that the Government was involved in a “guessing game” over the new tax structure’s impact.

It argued that Mr Johnson failed to produce any data to support his “suspicion” that the gaming industry will remain “vibrant”, despite the industry’s own analysis that taxation rates are increasing from 238 per cent to 453 per cent under the proposed new tax structure.

The Association also accused the acting financial secretary of being “nonchalant and apathetic” towards the possibility of industry job losses when he appeared to suggest that affected employees could apply for jobs as housekeepers and maids at Baha Mar.

This provoked an immediate online response from Island Luck chief, Sebas Bastian, who said: “OK, that may go down as the worst statement I’ve ever heard in my life. This man [Mr Johnson] just said that if my staff lose their job they could go be a housekeeper at Baha Mar.

“I am embarrassed as a Bahamian to hear you say that, Marlon Johnson. The 3,000 people employed in this industry is listening loud and clear. My people, this is what they think of you. My brother, there is no place in 2018 for that kind of mindset. Shame on you and whoever you are misrepresenting.”

Mr Johnson immediately sought to place his comments in context via a social media posting, explaining that he was trying to make the point there was sufficient growth in the economy to absorb job losses in specific industries.

“Let me clarify my statement if it was misunderstood,” he wrote. “The point I attempted to make is the economy today is in growth mode, so much so that even entry-level jobs like housekeepers are still being actively recruited by Baha Mar.

“That is to say that jobs at all levels are available in a growing economy such as we are fortunate to have. It was a response to a hypothetical question posed by the interviewer. I apologise if it came across that I was suggesting that persons losing a job in the industry should become housekeepers. That was, and is not, my intent.

“It was a point I was attempting to make about the broader economy in summary form during a fluid interview. I understand, though, the inference it could reasonably lead to. Hence I do apologise to those I may have offended due to my own lack of clarity on the matter.”

Many observers are likely to question Mr Johnson’s economic growth optimism, especially given the 60 per cent VAT rate hike. And, despite his clarification, there is no sign the web shops intend to let him ‘off the hook’.

“This is the first time since announcing the unfair and targeted tax hike that the Government has acknowledged the possibility of extreme job losses in the industry,” the Association said yesterday.

“If 2,000-plus Bahamians employed by the gaming industry were to lose their jobs due to an unavoidable downsizing, there is no guarantee that they would be employed by Baha Mar as housekeepers or employed at all. They, too, would have to compete with the hundreds of Bahamians already on Baha Mar’s waiting list.

“Is this the remedy that the Government of the Bahamas is prescribing to address the ramifications of their new taxation law on the lives of everyday Bahamians? Why is the solution sending Bahamians to work for foreign entities instead of securing their jobs with Bahamian employers?”

The Association continued: “We respect and applaud the housekeepers and space cleaners who are the backbone of the Bahamian hospitality industry, but we also respect and applaud the employees that are the backbone of our gaming industry, and we will not stop advocating to save their jobs.

“The gaming industry employees a wide range of staff including cashiers, security guards, graphic designers, accountants, marketing executives and compliance officers. We are disheartened that Mr Johnson has given no consideration to the highly-trained corporate staff of the gaming industry.

“He also thought nothing of the people the industry employees in our Family of Islands. Do we expect industry employees to leave their home islands to find work in New Providence? These hard-working and capable Bahamians should not be corralled into the hospitality industry because of callous and misinformed government policies.”

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 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.