Paradise lost for Bahamians, pt. 2
• 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.
Promotion subsidies by the Ministry of Tourism
1. Promotions and marketing funds from the budget of the Ministry of Tourism (MOT);
2. Special marketing incentives:
(a) Atlantis receives an annual promotional cash subsidy of $4 million from the Ministry of Tourism. On an estimated investment of $2.5 billion to $3 billion, it is conservatively estimated that Kerzner receives concessions valued in excess of $500 million, inclusive of exemptions from custom duties, real property tax, stamp duty and casino tax rebate under the Hotel Encouragement Act, the Stamp Act and the heads of agreement. Kerzner, when refinanced in 2014, granted a combination of casino tax rebate and marketing contribution of $8 million for years 2014 and 2015. In consideration, Kerzner provides employment, purchases local goods and services.
(b) Baha Mar receives an annual promotional cash subsidy of $4 million from the Ministry of Tourism. On an investment estimated at $3 billion, Baha Mar receives concessions conservatively estimated at $500 million; in addition, Baha Mar received a $20 million contribution from the government on the relaunch of Baha Mar.
(c) Resorts World Bimini receives $3 million per year for several years.
(d) The Pointe receives an annual cash $1 million promotion subsidy from the Ministry of Tourism. On an investment estimated at $300 million, The Pointe receives concessions conservatively estimated at a value of $75 million.
(e) Sandals – several million for several years.
(f) Club Med – several million for several years.
Over a period of eight years, the cash subsidies from the government to hotels, with heads of agreements, amount to over $100 million.
Business license fees
Hotels pay business license fees based on gross revenue collected.
Hotels and casinos: Guests pay VAT on everything with a price attached, like rooms, food and beverage, consumables, tours, spa services, etc.
Cruise Ships (Overnighting Incentives) Act, 1995
Cruise companies which deliver a minimum of 500,000 passengers and stay overnight in an approved or designated port in The Bahamas qualify for a concession of $5 per passenger from the budget of the Ministry of Tourism.
Hotel Encouragement Act, 1954: Construction concessions for hotels and casinos
Under the Hotels Encouragement Act, 1954 and VAT, hotels and casinos are exempted from the payment of VAT, customs duties, stamp tax on materials, equipment, furnishings and vehicles used in construction. They are also exempted from payment of real property tax for 10 years and pay only $20 per hotel room for the next 10 years. These concessions under the Hotels Encouragement Act may be extended with each major renovation or refurbishment.
Historically, Bahamian-owned hotels, with under 75 rooms, find it difficult to qualify for concessions under this act due to the requirement that they expend 25 percent of the market value of their properties in refurbishment over a period not exceeding two years. This requirement, while intended to apply to foreign investors, has had the unintended consequence of penalizing Bahamian-owned small hotels.
Foreign-owned casinos pay lower gaming taxes and enjoy the benefit of concessions, exemptions and subsidies. Bahamian-owned gaming house operators, who pay higher gaming taxes, do not enjoy the same exemptions, concessions, state subsidies and are restricted from doing business with the 6 million tourists who visit The Bahamas annually.
• Pay lower casino taxes and licensing fees on a sliding scale that is lower than that of the gaming house operators.
• Do not pay business license fees.
• Do not pay VAT on gaming revenues.
Casinos granted further concessions under heads of agreement
1. Casino taxes and fees are fixed for a period of 20 years for Atlantis and Baha Mar.
2. Casinos at Atlantis and Baha Mar are permitted to deduct from taxes payable for 21 years:
(a) $5 million from the amount of the annual license and monitoring fee;
(b) 50 percent of the annual gaming tax, in respect of taxable revenue in excess of $20 million.
3. Resorts World Bimini enjoys similar concessions.
4. Freeport casino enjoys lower tax rates.
The government of The Bahamas holds approximately 2 million acres of Crown land. Section 54 of the Conveyancing and Law of Property Act, 1909, gives a prerogative power to the minister of land by vesting in her/him the power, exercisable by the colonial governor before July 1973, “to make grants and dispositions of any lands or other immovable property or interests in any such property in The Bahamas that were vested in Her Majesty or the governor on behalf of Her Majesty as the property of the Crown for the beneficial interest of The Bahamas”.
Further, under section 5(3)(b) of the Ministry of Treasury Act, any power to grant a lease or license of treasury land for a term of more than three years requires the prior approval of the governor general. The governor general, pursuant to article 79 of the constitution, is obligated to follow the advice of the prime minister.
Significant Crown grants, long Crown leases and government conveyances and leases by the Hotel Corporation and the treasurer were made to Baha Mar, Baker’s Bay in Abaco, MSC in Ocean Cay port and resort, Resorts World/Bimini Bay, Royal Caribbean seabed lease in Berry Island, Sandals Royal Bahamian in Nassau, Sandals Emerald Bay in Exuma and Breezes in Cable Beach and numerous islands and cays in the Exumas and Abacos.
Environmental exemption for foreign direct investment via heads of agreement
The Bahamas is one of the few countries where foreign developers of large resort projects, with significant impact on the environment and Bahamian communities, can secure the approval of the Cabinet of The Bahamas, without producing an environmental impact assessment (EIA) and informed consultation with the communities affected.
The Privy Council said in the case Save Guana Cay Reef Association Ltd. and Others v. The Queen and Others (2009) UKPC 44 (November 17, 2009), at paragraph 31, that there “is no comprehensive legislation for environmental protection in The Bahamas, and there is no statutory requirement for an EIA to be obtained before permission is given for a major project likely to affect the environment… The law of the Bahamas does not at present require (in the well-known words of Lord Hoffmann in Berkeley v. Secretary of State for the Environment  2 A.C. 603, 6615), ‘The inclusive and democratic procedure… in which the public, however misguided or wrong-headed its views may be, is given an opportunity to express its opinion on the environmental issues.’”
In the cases of Save Guana Cay, Oban in East Grand Bahama and Disney in South Eleuthera, there were no EIAs and informed community consultation prior to the granting of the heads of agreement. In these cases, foreign investors were given approvals prior to environmental scrutiny, unlike Bahamian-owned projects, which must first satisfy Town Planning requirements before approval is granted.
Family Island Development Encouragement Act
The concessions under this legislation, intended to stimulate economic growth in the Family Islands, have spurred the growth of the second-home market that has morphed into a vacation home industry marketed by Airbnb and other online agencies. Vacation home rentals or the rental of owner-occupied homes, especially in Abaco, Eleuthera and Grand Bahama, have become the choice of accommodation for millennials and European travelers. This niche market is the fastest-growing tourist market; it is unregulated and offers Bahamians an entrepreneurial opportunity.
• Alfred Sears is a Queen’s Counsel and former member of Cabinet.