Monday, Jun 25, 2018
HomeNational ReviewAre all sins created equal?

Are all sins created equal?

Could politicians’ economic interests in liquor business hurt tax arguments?
Dioniso D'Aguilar (left), Dr. Hubert Minnis (center) and Brent Symonette.

The government’s decision to tax gaming house revenues up to 50 percent in the coming fiscal year has triggered an intense public relations battle between the Minnis administration and the web shops, with minister responsible for gaming, Dionisio D’Aguilar, introducing a new element to the argument on Monday – that is that gaming taxes fall into the category of sin taxes, and as such sin taxes are traditionally high.

Liquor also falls into the category of goods and services that attract a sin tax.

Hubert Alexander Minnis, Theodore Brent Symonette and Dagbrothers (Dionisio D’Aguilar) are all shareholders in liquor business Commonwealth Brewery, according to its December 31, 2017 list of shareholders.

This in itself does not suggest that the government discriminated against web shops in dropping the tax bombshell on them in the recent budget communication, but it is likely to intensify the public debate on this contentious matter notwithstanding the fact that the shareholding of each is under one percent of total shares.

Last night, D’Aguilar said his “inconsequential” interest in Commonwealth Brewery has had no impact on decisions relating to taxing gaming houses.

“It certainly doesn’t drive my decision on whether I would tax the alcohol business any less,” he said.

“I mean, to be quite honest, we just didn’t look at it. I mean, when you evaluate the taxes that Commonwealth Brewery pays, they pay taxes at the border…”

D’Aguilar said until someone brought up his company’s shareholding in Commonwealth Brewery yesterday, he didn’t even think of it.

“I wasn’t looking at that,” he said.

“When we were deciding on what taxes to pay on the gaming industry we were just looking at the gaming industry.

“We know that the alcohol industry pays a lot of taxes, we know that cigarettes pay a lot of taxes…and if this discussion then leads to ‘let’s evaluate the other sins’, then we’ll evaluate them.”

D’Aguilar said as the minister responsible for gaming, he looked at gaming.

“We didn’t step back and do a holistic analysis of every sin that’s committed in The Bahamas. We just said, ‘Okay, let’s just look at the gaming industry and is what they’re paying a fair tax and it’s very subjective. What is fair? Can you tell me what is fair? It’s difficult, right?”

D’Aguilar said it would be “rubbish” and “ludicrous” for anyone to suggest decisions were made based on politicians’ interest in Commonwealth Brewery.

“That’s certainly not guiding our decision; we’re not protecting the alcohol business because we own a couple shares in a company that produces beer and runs a spirits company. It’s a minor part of my net worth.”

The government seemingly had no plan or strategy to control the narrative on its planned tax hikes.

In introducing the “sin tax” discussion to the debate, surely they should have known that their shareholding in the liquor business – no matter how small – would attract the spotlight and raise questions about their independence and objectivity in the discussion.

Attorney Alfred Sears, who represents the Bahamas Gaming Operators Association (BGOA), alleged discrimination in a letter he wrote to Minister of Finance Peter Turnquest one day after the budget communication.

In that lengthy letter, Sears included a table illustrating the 2017 tax assessments of publicly traded entities, which he said are similar to members of the gaming operators association, either as financial institutions or providers of recreational products, but none of which will be subjected to the government’s proposed “draconian tax increases over their total collected revenue”.

Sears wrote: “… You will see that Commonwealth Brewery, which had a total revenue of $133,093,069 in 2017, will still be taxed at a rate of 12 percent on its total revenue.”

He continued: “We note that Commonwealth Brewery, like our client, provides recreational products or activities, yet Commonwealth Brewery will not be subjected to the increase in the tax rate over revenue that will be imposed on gaming house operators.”

Sears also said in that letter: “Given the similarities between Commonwealth Brewery and gaming operators in the provision of recreational products and experience, it appears to be inequitable for the government of The Bahamas to impose the proposed sliding scale income taxation on gaming operators and exempt Commonwealth Brewery and other recreational businesses from an increase in the tax rate over their total revenue.”

He contended that the proposed sliding scale of rates to be applied to taxable revenue of gaming operators is an impermissible application of income tax over one industry rather than a national and progressive income tax system treating similar industries and enterprises the same.

On Monday, D’Aguilar said he does not believe the government’s decision to hike taxes for gaming houses is discriminatory.

“You either agree that it’s a sin or not a sin, and if you agree that it’s a sin, then all sins are taxed heavily,” he said.

“The crux of the discussion is, where is the threshold: where is it high and where is it low? That is the $45 million question. That’s what we have to decide, and when I speak to Parliament, I will speak to that matter.”

When asked whether the government could still adjust the rates, D’Aguilar said as far as he is concerned the pending rates are “set in stone”.

 

Facts & opinions

We cannot speak to whether the gaming operators’ court case is likely to go anywhere, but public sentiment is in their favor, according to a recent poll by research firm Public Domain.

Seventy-three percent of people who participated in a poll last week said the decision to increase gaming house taxes as high as 50 percent is unfair.

Eighty-nine percent said the government should consider the loss of jobs in the gaming industry if new taxes are passed.

Seventy-six percent of respondents believe the budget will likely help wealthy Bahamians and 62 percent believe the budget is designed to benefit special interests within the Free National Movement (FNM).

D’Aguilar said on Monday that, when he speaks during the budget debate, he will reveal the data that supports the government’s decision regarding the level of taxation for web shops.

“I just find it difficult for people to conclude whether it is high (the new taxes) or not, without actually seeing the facts,” he said.

“You will see that there is no discussion on what the revenue figures are, no discussion on what the profitability figures are. So how can you conclude whether it is high or not?

“So, let’s have an intellectual conversation about it. I just think that everybody is using the hype for their own political gain to push a certain agenda.”

Last week, the Ministry of Finance circulated numbers after the budget communication about the gaming industry.

According to that “Domestic gaming overview”, “the government is introducing a progressive tax system for the domestic gaming sector that allows gaming houses to pay their equitable share.”

It added, “While the domestic gaming industry has brought valuable innovation and job creation, the original flat tax of 11 percent for gaming houses was under valued compared to global standards.

“Consistent with international norms, the government’s policy is that domestic gaming industries should provide a greater return to the state, while still permitting a fair return to the licensed operators.”

There is a $3.4 billion in aggregate gambled by Bahamians, the information sheet notes, listing the source as the Gaming Board, 2017.

It said 71 percent of all licensed operators fall in the lowest category of taxation.

Fourteen percent of gaming houses fall into the over $100 million category, the information sheet states.

It will be interesting to see if D’Aguilar has some other facts to add to the debate.

The gaming house operators have also put out their own information sheet, noting that they engaged independent expert Gavin Hamilton for an analysis of the proposed tax hike.

The association said that report found the tax structure that the government is currently proposing would bring The Bahamas’ rates among the highest in the world and result in 2,000 job losses, store closures of up to 192 venues and a reduction of marketing spend by 30 percent.

The government has said it is seeking to tax gaming operators in an equitable fashion, but the operators say the independent expert found that the current tax rate of 13 percent is broadly similar to the United Kingdom market’s 15 percent, which is the largest regulated online gambling market in the world.

Yesterday, the gaming operators released two reports – one from Christiansen Capital Advisors, LLC. and the other from Oxford Economics – which suggested that the government used false comparisons and faulty assumptions to justify the exorbitant tax hike on the domestic gaming industry.

The gaming operators have intensified their public relations against the planned tax increase.

Yesterday, a video promo circulated on social media with gaming house staff at work, sending the message, “I need my job.”

 

Evolving arguments

In seeking to make a case for the tax rise for gaming houses, the government has also spoken of the need for higher taxes to cover the social cost of gambling on Family Island communities.

“These web shops, and you can correct me if I’m wrong, for the most part they are not taking that money and investing it back into these communities, in these islands. They bring the money to Nassau or take it wherever they take it,” Turnquest told Parliament last week.

“What’s left in these islands [is] nothing but hardship and misery, and people who can’t make their ends meet.”

Minister of State for Legal Affairs Elsworth Johnson had the same argument during the budget debate on Monday.

“I heard the persons, and what they are saying, that ‘we are being overtaxed and we’re spending too much’, but I just wanted to [say] that, Mr. Speaker,” Johnson said.

“And so, I say that to say, it has been proven there is a great social cost, and how do you pay for that?

“I believe, and I know research supports it, it can be as addictive as alcohol, and there should be some warning.”

Critics of this argument, of course, would argue that alcohol has a significant social cost on communities as well.

Both are difficult to quantify.

If the government has decided that there are too many web shops in our communities then it should say that and take steps to reduce them – if that is its principled position.

In using the sin tax argument, the government strengthens the argument that the tax being imposed on gaming house revenues is unfair if other ‘sins’ are not being similarly targeted.

That perception would no doubt be worsened by the fact that some in Cabinet have an economic interest in the liquor business.

Of course, there would also likely be the argument from the side supporting the tax increase that the liquor industry pays money into the treasury by way of customs duties on imported products.

We hope the coming days bring a resolution to what remains a hugely contentious situation.

No one we know is anxious to see job losses in an industry that has been brought out of the shadows.

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