How will the expiration of tax benefits under the HCA affect you?
The Hawksbill Creek Agreement is an agreement with a 99-year lifespan, expiring in 2054. However that date is misleading, as arguably some of its most beneficial aspects expired in 1990. For on that year, exemption from Real Property Tax, Personal Property Tax, Capital Gains Taxes, Taxes on Shares and Earnings, expired. Of course, due to a private arrangement with the Grand Bahama Port Authority the expiration date of these benefits was extended to 2015.
Why should you care about the forthcoming expiration of these benefits? Will paying annual Real Property Taxes have an impact to the bottom line of your company? Should annual earnings taxes be extended to Freeport, will the payment of these make a dent to your profitability? Do you plan to realize capital gains from years of hard work building up the value of your business? How do you feel about sharing 10% of this with the Government? Without a doubt, if the exemptions from these taxes is not extended every business owner, every property owner and most of the residences of Freeport will feel the pinch (or pain) of higher taxes.
Unlike 1990, when the shareholders of the GBPA entered into the Freeport Act with the Government which provided direct benefits to both parties and indirectly benefited the Licensees and residents of Freeport, today there is a different situation at the GBPA. Today there is an opportunity for the Licensees, as one of the original three parties of the HCA to extend the tax benefits via an amendment to the original agreement. However, to achieve this goal, Licensees need to work together with a desire to improve our community and country.
Where do we start? Perhaps we need to first find answers to some questions raised by critics. After all, why should the Government continue to provide favorable tax status to Freeport. Doesn’t a tax benefit provided to Freeport take something away from others in The Bahamas?
A fundamental provision of the HCA made it mandatory for the GBPA to pay to the Government 125% of its cost of providing to Freeport any and all government services. In other words, government revenues collected in Freeport needed to reimburse the Government 100% of its costs plus a 25% profit. The GBPA is required to make up any shortfall. From the beginning of the HCA, government revenues have always exceed the target. Therefore, from the important point of government revenues, maintaining the status quo in Freeport with regard of these exempted taxes will not harm the public purse.
In fact, the economic future of The Bahamas will be greatly dependent upon a healthy Freeport. For all its progress, Freeport is a very young town. While the vision of the original founders has transformed a pine forest and small collection of settlements into a modern city of 45,000, the potential for even greater future economic growth is still within our reach. As the GBPA goes through its change of ownership, now is not the time to increase taxes and radically change the cost basis of doing business in Freeport. With the population explosion in Nassau, a greater demand for the creation of jobs will be placed upon Freeport. Businesses here have worked hard to build today’s economic engine, one which provides substantial revenues to the Government. Image what could be accomplished in the next 45 years.