I read with interest recent newspaper articles giving the reaction of the now former Minister of State for Grand Bahama and Finance, J. Kwasi Thompson, as well as a prominent Freeport attorney, to the prospect of the re-introduction of The Grand Bahama (Port Area) Investment Incentives Act, 2016 (the Act).
According to Thompson, the act was only repealed in substance, which in my view is potentially more perilous and damaging to the country’s reputation and the government of the Commonwealth of The Bahamas, than an outright repeal, which was believed by many to have occurred on October 18, 2017.
However, since it is a “new day” in the country, which I’m certain will be accompanied by new thinking, I chose not to engage in a debate regarding the pros and cons of the act and will do my best to steer clear of the political land mines that may have been planted. Instead, I will use this opportunity as a teachable moment.
Successive governments over the last 60 plus years have entered into numerous agreements with foreign direct as well as local investors for various hotel resorts and golf course, manufacturing, and real estate developments, inclusive of second homes, investment projects, throughout the length and breadth of The Bahamas.
These agreements are oftentimes referred to as head of agreements (HOAs) and in the case of Freeport, Grand Bahama, the Hawksbill Creek Agreement (HCA), which was entered into by the colonial government back in August of 1955. The HAC has a remaining life of 33 years.
A number of these agreements also fall within the definition of “public, private partnerships” or “triple p” agreements.
Although these agreements are tailored for a diverse number of investment projects as noted above, the common underlying theme is that, in exchange for the central government granting these various investors certain tax concessions and in some cases land grants, the investors agree to build, develop and promote major touristic resorts, construct and operate manufacturing facilities, build second homes etc., consistent with the terms set out in their respective underlying HOA.
In essence, these agreements are based on the “quid pro quo” principle, where the investors give certain commitments to and agree to carry out specific undertakings with the central government (i.e. constructing, developing and promoting a resort project, or constructing a second home within a specified period of time, or employing a specified number of Bahamians during the construction phase of a project and once the project comes to fruition etc.), in return for the central government granting them these tax and other concessions.
Unfortunately, over the years, and due to a lack of robust monitoring of compliance by the central government, investors have not always lived up to their commitments and undertakings under these HOAs.
Surprisingly, certain of these same investors continue to enjoy generous exemptions from customs, excise and stamp duties and real property taxes for periods of up to 20 years.
Generally, there is no outcry from Bahamian taxpayers because in most cases, they are either unaware, or do not fully understand the real value of the various concessions granted by the central government to these investors, which I might add, in the case of the larger investment projects, are quite significant.
As a result, successive governments have not been able nor willing to hold these investors accountable; and in the process, may have forgone the realization of millions of dollars in revenues, which could have resulted from a properly constituted and functioning compliance enforcement regime.
Hence the strenuous objections raised by the former state minister of finance and the prominent Freeport attorney appear to have missed entirely the reason why it is necessary for accountability to accompany tax and other concessions granted by the central government, whether under the terms of the HCA and ancillary legislation, or any of the multitude of HOAs currently in force.
Instead, such monitoring is viewed by them and others, as being contrary to ease of doing business and subjecting the GBPA licensees to having to “beg the central government for the renewal of business license, real property tax, income tax and capital gains tax exemptions”.
Undisputedly, HOAs and the HCA have proven beneficial for the development of The Bahamas over the years, and such investment incentive programs should continue.
However, in my view, successive government have not fully leveraged these arrangements by ensuring that investors comply with their commitments and undertakings, and be made accountable when there is a departure.
This now, more than ever, has to change in order for our developing nation to realize its full economic potential.
— Kevin D. Seymour
Freeport, Grand Bahama