Sunday, March 3, 2024

THE HOYOS FILE: On Butch’s coat-tails:  a tax-free paradise?


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There was a time when Gordon “Butch” Stewart – if I remember correctly, but I might be wrong – railed against the tax-free status of the cruise ship business.
Today, his empire is so powerful and his hotels are in such demand that he has been able to get, it seems, complete tax-free status for his hotels in both Grenada and Barbados.
Not to worry, Butch’s coat-tails are so long that he is taking the entire hotel sector with him to tax-free paradise.
This is such good news that we will not dwell on the fact that the legislation that is apparently being feverishly worked on day and night to achieve this will mark a complete turnaround in government’s pay-me-first policy toward the tourism sector.
In fact, Tourism Minister Richard Sealy said in the House of Assembly last week that the effect of the legislation would be to recast tourism as an “export” industry. Which is exactly – exactly –  what Mr Stewart said at the Barbados Chamber of Commerce luncheon recently.
The fact that it has always been an export industry with only partial recognition as such in terms of how it is taxed shows the complete disconnect that exists between the taxman and the taxpayer.
And no matter how they tried, the people who run our tourism sector were always either ignored or criticised for wanting to make off with the goodies and not pay their share of taxes. This suspicion remains to this day, and while some of it may be healthy, most of it is misdirected.
This is because the sector is now being driven by a few mega-operators, who themselves are being driven by an increasingly price-conscious consumer, who is also being taxed by their own governments just for buying a ticket (sales taxes and, on one side of the pond, the APD).
As Stewart pointed out at the Chamber lunch, consumers who come to a country from abroad don’t want to have to pay local taxes.
Destinations like ours, which are suffering from lack of vision and the capital to implement it must become more price competitive without devaluing our dollar.
The only way to do that, in this labour-intensive industry is to lower the cost of the inputs into creating the product at every level –  accommodation, food, services, and leisure activities. We also need to employ more people in tourism, not fewer, in order to provide more personable service.
Mr Stewart says, with the fabulous properties to prove it, that his company uses the savings from local taxes to build out his hotels into fantastic destinations of their own that seem out of this world, and to compete with the other destinations and cruise ships. Nobody can begrudge him the fact that he has done very well for himself in the process. Stewart has redefined the Caribbean tourism experience from the ground up, and now everybody, not only here but around the world, wants a Sandals or a Beaches in their country.
Up to now, however, the Barbados Government’s policy was based on that last point alone, not only for Sandals but for all hotel investors. You are going to make so much money on this deal that you have to contribute to our economy by paying import duties at the port and VAT on your value-added at the time of sale, ran the argument.
Added to this argument was that the government could not do without the revenue from the import duties. Simply couldn’t.
This is all now slipping into economic history.
Helped by a very sophisticated Barbados Hotel and Tourism Association executive, speaking bluntly as usual but offering to facilitate the usual suspects who cry foul every time they try to make tourism more competitive with the outside world.
I am referring to the stuck-in-the-Sixties Barbados Manufacturers Association and Barbados Agricultural Society. They have always played the import substitution card.
Now, it seems, the hotels will be exempted from these import duties if they can show that the item they need to import is not being produced here, if I heard Mr Sealy right. But this is a bad middle ground, as it does not make for ease of importation and still casts the dubious shadow of personal ministerial or bureaucratic intervention over the intended policy of transparency.
It will not be viable to try to retain import duties in this way. Why not treat all commercial producers of food and goods – manufacturers, farmers, agro-processors and food producers, including restaurants – into the same import-tax concessions which will be given to the hotels on the strength of the coat-tails of Butch Stewart?
This would make everybody more competitive. Yes, we direct consumers will still have to pay them for a while – but we all know they were only there to dissuade us from buying these products in the first place.
Eventually all of these special local import duties or luxury taxes should be abolished for local consumers anyway under the EU partnership Agreement (EPA), leaving only the import duties leveled under the Common External Tariff.
Now, what is the immediate downside? According to Central bank figures, import duties raised around $200 million for the year 2012-13, having peaked in 2008-09 at around $220 million. I don’t have a breakdown of how much of this is for the hotel and manufacturing sectors combined, but let us say for argument’s sake that it is about half.
So in the short term, if import duties were wiped out for everybody but the retail sector (that is, for consumers) the Treasury would “lose” $100 million.
But, with the new understanding that the only way we can build back the economy   to get more competitive, imagine how much more business we would potentially create if all of these savings were passed along to the tourists, and the locals who go to restaurants and hotels.
You can’t get into the modern era on Victorian policies. The government should not be afraid to go the whole hog on abolishing import duties.


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