• Chamber seeks corporate income tax legal opinion

• President: ‘Don’t wait till 11th hour’ for city’s revival

• Fears much of founding treaty benefits ‘squandered’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Bahama Chamber of Commerce’s president is seeking a legal opinion on whether corporate income tax can be lawfully imposed in Freeport as he yesterday warned that time is running out to make the city a “boom town”.

James Carey told Tribune Business that The Bahamas cannot afford to “wait until the 11th hour” to ensure Freeport finally fulfills its potential with the city’s founding treaty, the Hawksbill Creek Agreement, set to expire in just over 31 years from now.

Voicing fears that this nation may have already “squandered” the Port area’s free trade zone potential, he agreed that the potential imposition of corporate income tax in Freeport was against both the spirit and intent of the Hawksbill Creek Agreement’s efforts to encourage the development and growth of a new city.

“I’m waiting for a legal opinion on whether it can be applied to Freeport,” Mr Carey told this newspaper on the Government’s corporate income tax proposal. “I suppose anything can be applied with the right legislation. Freeport has gone through a hell of a lot...

“There was a question back then whether VAT could be applied in Freeport, but that effort abated. I suppose corporate income tax will follow the same line. It’s going to drive costs up for merchants. There’s a domino effect throughout. The merchants aren’t going to take a hit; ultimately it’s passed on to the consumer. It’s a trickle down.”

The estimated 3,500 Grand Bahama Port Authority (GBPA) business licensees presently enjoy exemptions from income, capital gains and real property taxes under the Hawksbill Creek Agreement, although the Davis administration’s recent attacks on Freeport’s quasi-governmental authority and founding treaty raise many questions and much uncertainty - including the future duration and extent of these tax carve-outs.

The Government itself has already admitted it is uncertain over whether any corporate income tax can be applied in Freeport. “Businesses under the Hawksbill Creek Agreement in Freeport are exempt from paying the Business Licence fee, alongside the elimination of property taxes and import duties,” its corporate income tax ‘green paper’ said.

“For these free trade zones, appropriate Bahamian legal advice would be required to determine whether the application of corporate income tax would be legally possible, though any application of corporate income tax would likely erode the competitive advantage afforded to this area.”

The four corporate income tax reform ‘options’ floated by the Government would, in most instances, see the new tax replace the Business Licence fee for many companies. However, the impact would be different in Freeport as most businesses there pay their licence fees to the GBPA rather than the Government. It is unclear whether they would, too, cease paying these fees to the GBPA if a corporate income tax was introduced.

Mr Carey, meanwhile, implied that the corporate income tax discussion had merely created another element of uncertainty for Freeport. He said: “Freeport does need a bit of a break, and the recent machinations of the Government and Port Authority have only caused trepidation. The Government and Port Authority need to come together and have some serious discussions on the way forward.

“There’s 30 years left on the Hawksbill Creek Agreement and we don’t want to wait until the 11th hour to make the place boom. It’s to the country’s advantage to start the boom now so that when it comes to an end we have a booming city. There’s no reason why the Government cannot put in the effort. They’re deriving a lot of taxes out of Freeport and there’s talk of real property tax as well.

“You cannot just tax, tax. The Government has a huge appetite for spending and it’s constantly looking for all sources to satisfy that appetite.” Asked by this newspaper whether a corporate income tax would go against the Hawksbill Creek Agreement’s intent and spirit to create a ‘tax-free’ free trade zone, Mr Carey replied: “In my view, it does.

“The whole concept of Freeport being the city it is was intended to make it the ideal city that was great for The Bahamas, great for the residents and great for the Government., but we seem to be badly off the mark right now. Every time you turn around there’s more taxation. The Government has a huge appetite for taxation because they have an equally big hole to fill through their spending.”

When this newspaper raised the question of whether Freeport and, by extension, The Bahamas are in danger of squandering the Hawksbill Creek Agreement’s final 31-plus years, Mr Carey said: “I think that in many ways the benefits have been squandered already because there are so many things now that, for development purposes, need government permission and approval.

“There’s no easy path any more except for routine type businesses. It has to go by way of the Port Authority and the Government. It’s just incredibly difficult to do business. You look at places like Abaco, Exuma, Eleuthera, where the Government is the only stop. Here we have the Port Authority and the Government. It’s just a little more complex than other places when it should be more seamless and easier to business.”

A corporate income tax will be the first such income-based levy in the country’s history, apart from the National Insurance Board’s (NIB) payroll-based contributions, and is intended to ensure The Bahamas complies and fulfills its obligations as one of 140 countries that have signed on to the G-20/Organisation for Economic Co-Operation and Development (OECD) drive for a minimum 15 percent global corporate tax.

In the first instance, this initiative applies only to corporate groups and their subsidiaries that have a minimum annual turnover in excess of 750m euros. The Government’s ‘green paper’, which is dated May 17, 2023, sets out the first option as merely introducing a 15 percent corporate income tax for all Bahamas-based entities that fall into that 750m-plus turnover category, while maintaining the Business Licence status quo for all entities which are not affected.

Mr Carey yesterday said he understood the global pressures facing The Bahamas, but added that “there are always exceptions to every rule and we need things to happen here”. Disclosing that Freeport businesses and residents anticipate that more pressure will be applied to the GBPA and its owners, the Hayward and St George families, he questioned “how much appetite” they have for “fighting” the Government.

Pointing out that a thriving Freeport will benefit all stakeholders, including the Government and its taxes, the GB Chamber chief added: “The fist step is the Government and the Port Authority getting together and hammering out the way forward. We’ve heard a lot of talk about the airport but, all of a sudden, it’s gone quiet and we’re not seeing or hearing anything.

“We can’t be sure of anything. It’s not looking particularly bright because there’s no definitive way forward.”