A leading Queen's Counsel (Q.C.)has urged the government to have the "vision" to allow Freeport to gain a further competitive advantage under value-added tax (VAT), rather than seeking to impose VAT on services among Freeport licensees in "breach of the Hawksbill Creek Agreement".
Fred Smith, partner with Callenders and Co. and an ardent supporter of maintaining Freeport's "tax free status", said it would be "shortsighted" of the government to apply VAT in the Grand Bahama city.
"I urge the government to be visionary and exclude VAT from Freeport; it would be a feather in the government's investment cap and it would enure to the election benefit of the PLP, because if Freeport could be a place for businesses to set up head offices, and so on, it would provide economic growth and obviously spillover economic effects throughout the rest of The Bahamas," said Smith.
Within its "VAT Guide" released on the government's website last week, the government noted that goods imported or removed from bond by the Grand Bahama Port Authority or a port licensee will not have VAT applied, and neither will it apply if supplied by the port authority to a licensee, or by one licensee to another.
Any transaction that is not included in clause two of the Hawksbill Creek Agreement (HCA), which outlines tax exemptions available to port licensees, will be subject to the normal rules outlined in the VAT Bill 2014 and VAT Regulations, say the guidance notes.
These would include the sale of goods by a port licensee to someone in The Bahamas who is outside of the port area.
Furthermore, VAT will be applied to services provided by one port licensee to another, despite these transactions not being taxable at present, according to the guidance notes.
Smith, who is currently waging a legal battle with the government over taxes imposed in Freeport last year, said: "The HCA has not worked effectively during the first 50 years because so many governments in the last 30 years have attempted to extract taxes when they ought not to have and have not breathed life into the spirit of the HCA.
"Putting aside the legalities of whether VAT can be implemented in breach of the HCA, it is shortsighted of the government not to use the VAT as another opportunity to promote Freeport as a tax-friendly investment environment for both Bahamians and foreigners."
The attorney called Freeport the "goose that lays the golden eggs for The Bahamas" and insisted that the government must "stop being myopic, insecure and frightened" of the city being given independence from government control and taxation.
He added, "I ask the question, why do successive governments continue to beat on Freeport instead of recognizing its potential and capitalizing on the opportunities for growth?"
jump headline: VAT exemption would have 'spillover' benefits

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