Paradise lost for Bahamians, pt. 1
• This three-part series is from a National Progressive Institute public lecture delivered by Alfred Sears at The University of The Bahamas on March 5, 2019.
Good evening. I thank Andrew Edwards, Esq., president of the National Progressive Institute, for inviting me to give the NPI public lecture. I also thank the Progressive Young Liberals, the Bahamas Institute of Chartered Accountants, the One Eleuthera Foundation and the Center of Technology and Innovation for co-sponsoring this event.
In this public lecture, my thesis is that the ring-fenced development process, comprising exemptions, concessions, state subsidies and Crown land, around foreign direct investment in The Bahamas has reached a point of diminishing return, hampered the growth of Bahamian capital and now constitutes a constraint on sustainable national development in The Bahamas.
Under the present Bahamian tax and investment system, which I refer as the Stafford Sands model, Bahamian citizenship is a disadvantage. Bahamians pay a 12 percent value-added tax; custom duties, business license, National Insurance and real property tax. Foreign investors in the tourism and financial services sectors are exempted from most local taxes and receive incentives, concessions and state subsidies whether they are profitable or not, while profits from these enterprises are repatriated out of The Bahamas.
Assumptions of Stafford Sands model
1. Incentives, concessions, state subsidies, access to Crown land and one-stop shop facilitation ring-fenced around foreign direct investors, as the driver/independent variable for national economic growth
2. Nassau-centric tourism business model (Las Vegas on a beach)
3. Tax haven: Promise of tax-free environment to foreign-owned businesses
4. Secrecy jurisdiction
5. Monetary policy, through the Exchange Control Regulations Act, which restricts Bahamians to the domestic economy, limits Bahamian ownership of banks and trust companies and imposes a premium of seven to 10 percent on Bahamians investing abroad and borrowing from abroad.
Angela Cleare, in her book, “History of Tourism in The Bahamas: A Global Perspective” (2007), details how these assumptions were driven and marketed by the visionary leadership of Sir Stafford Sands producing a year-round tourism industry and financial services industries under the extraordinary leadership of Sir Stafford Sands. Sands, as chairman of the Development Board (Bobby Symonette, Trevor Kelly, Charlie Bethel, Harold Christie and Sir Henry Milton Taylor) in 1950, as the first minister of tourism in 1964, and as minister of finance leading the introduction of the financial services industry and the Bahamian dollar in 1966 pegged to the U.S. dollar to the time he left office as minister of tourism in 1967. The Hotel Encouragement Act in 1954; the Hawksbill Creek Agreement in 1955 for Freeport; the Family Island Regatta in 1954; the Windsor Field Airport; customs services at Prince George Dock to facilitate cruise passengers; establishment of the Bahamas National Trust in 1958 and in 1959; the Inagua National Park and the Exuma Cays Land and Sea Park in 1958.
Special mention should be made of the Quieting Titles Act, 1959, which provides a judicial process for the determination of disputes as to title to land in The Bahamas. The Judicial Committee of the Privy Council, in the case of Anthony Armbrister and Others v. Marion E. Lightbourn and others (2012) UKPC 40, quotes Paul Adderley that “bench and bar must be vigilant to prevent the statutory procedure being abused by ‘land thieves’”.
In the White Paper for Independence of the Commonwealth of The Bahamas, presented by the prime minister to Parliament on October 18, 1972, it is affirmed that: “Incentives. 135. The Commonwealth of The Bahamas shall continue to provide what is among the best range of incentives for the development of a private enterprise anywhere in the world, and the nationalization shall not be an instrument of the government’s economic policy. Therefore, the assumptions of the Stafford Sands model were continued after independence by both the Progressive Liberal Party and the Free National Movement governments.”
Under this model, The Bahamas was presented as a success model which saw visitors’ arrival grow from a mere 32,018 visitors in 1949 to 6.6 million in 2018. It has produced in 2018 a gross domestic product of US$12.9 billion, with a per capita income of $23,000. The financial services sector in The Bahamas, based on the assumptions of the Stafford Sands model, also ring-fenced foreign-owned banks, trust companies and insurance companies from the obligation to pay local taxes.
Hotel occupancy/resort/room levy tax
By letter dated March 3, 1970, the Minister of Tourism, Sir Clement T. Maynard, granted the newly constituted Nassau and Paradise Island Visitors and Group Promotion Board, incorporated in March 23, 1970, the right to “start lobbying a toll of four percent on room prices (European Plan) as of Sunday, 8th March 1979”. On October 18, 1984, the Paradise Island Tourism Development Association was incorporated as a company limited by guarantee to promote the tourism industry of Paradise Island. In 2003, the Grand Bahama Island Tourism Board was incorporated as a company limited by guarantee to promote inbound tourism to Grand Bahama Island
From March 8, 1970, these promotion boards collected a resort levy from each guest at its member hotels. Hotels in New Providence collect 10 percent of room rate, eight percent of room rate as a resort levy which they retain, and a lesser amount is collected by Family Island hotels which is paid to their promotion boards. The retained amount taken by promotion boards is spent in the boards’ exclusive discretion for “promotion and training programs”. These boards are controlled primarily by the major hotels, all of which are foreign owned and controlled; the Ministry of Tourism has neither a seat on the boards of directors nor a vote in the running of the promotion boards.
Today, the portion of the resort levy that is annually retained by the promotion boards amounts to approximately $50 million. The Ministry of Tourism itself has allocated about $20 million to promotion. Therefore, the bulk of the tourism promotion budget, from taxes, is controlled by the promotion board, beyond the control of the Ministry of Tourism, and is not accountable to Parliament.
There is no statutory authority for the promotion boards/hotels to collect these taxes or levies, apart from the 1970 letter from the Ministry of Tourism. Therefore, it is, I believe, a live legal question whether this approximate $50 million, outside of the statutory framework, is a proper tax or levy.
Article 52 (1) of the constitution gives the House of Assembly, subject to the provisions of the constitution, the power to make laws for the peace, order and good government of The Bahamas, including the power to raise taxes. A measure is a tax if it contains three elements: (1) it is a compulsory imposition under state authority; (2) it is payable to the state; and (3) it is for a public purpose. Inland Revenue Commissioner and Attorney General v. Lilleyman and Others (7) (1961), 7 W.I.R. at p. 504; Matthews v. Chicory Marketing Board (8) (1938), 60 C.L.R. at pp. 276, 290. The resort levy is compulsorily taken from guests, under color of the state’s permission; the bulk of it is paid to the Consolidated Fund; and all of it is supposed to be dedicated for a public purpose, which is the promotion of The Bahamas. However, neither the audited financial statements of the promotion boards are laid in the House of Assembly by the Minister of Tourism, nor are the audited financial statements reviewed by the auditor general.
• Alfred Sears is a Queen’s Counsel and former member of Cabinet.