WILD COOT: The Sandals folly
I DO NOT BELIEVE that even now we fully understand the height of folly reached in granting total tax concessions to Sandals until 2030 or thereabouts.
The upshot first was that all other hotels cried foul and rebelled against the uneven playing field. Then so as to make peace, we manufactured rules so that a few players could acquire the same concessions. But that is still playing with fire as the playing field has become even more uneven.
When a new hotel proposes to come to Barbados, how are we going to tell it that those concessions that Sandals enjoy cannot apply to them? Hoteliers at Hyatt, Sam Lord’s Castle and Four Seasons will insist on the same tax concessions. This will increase the pressure on Government to cede similar concessions to existing hotels. We then have a hotel industry that is taking advantage of our prime asset and contributing little to the whole tax effort.
Furthermore, other investors will be looking for similar tax breaks (sounds familiar). In the meantime, citizens are inundated with confusing tax impositions. We see it in the previous and the last Budgets.
So it was the pinnacle of folly for our Government to make the offer to Sandals. I am made to understand that the deal is so secret that we (the citizens) are not allowed to see the agreement. Why?
Now let us examine what the concessions mean or do not mean to Barbados and Barbadians. What we get: An increase in the number of tourists who come to Barbados, most of whom will spend their time in all-inclusive hotels. Some Barbadians will be employed in the building of the hotels and later in the running of the hotels. What we do not get: Hotels will be fully using our infrastructure (water, electricity, telephone, roads, and so on) and some without paying tax for the essential running of the country in which the hotels exist. Pure folly!
Here is what I understands happens. When a tourist books a hotel room, 90 per cent of the time it is done through a booking agent abroad; with Sandals this may be 100 per cent of the time. That foreign currency stays abroad. I am made to understand that even with local hotels, most of the foreign currency stays abroad. Will that be happening with the hotels that we are considering building?
In the case of commercial banks, they hold their foreign currency on behalf of the Central Bank and it is part of the total Barbados holdings. Not so with the hotel agents abroad. If that money is not repatriated, then it is not part of the Barbados holding.
At least when, and if, profits are declared by a local hotelier, the Barbados Revenue Authority has an opportunity to have some of that foreign exchange remitted to Barbados in the form of taxation. So then we are not maximising our main asset, and the folly of the Sandals giveaway created a bad precedent. We should not boast about folly.
No wonder then that even with an increase in tourist arrivals, there has been a drop in foreign exchange, especially with lower oil prices existing.
Our Central Bank now seems to be heeding the advice of Mr Owen Arthur to stop printing money. We need to ask if it is too late; what damage has the $3.8 billion done to the economy, the savings of the country and to the viability of the National Insurance Scheme?
We wait to see whether or not the call to halt printing will result in insufficient money to pay civil servants and make transfers to the statutory corporations on monthends. Just the other day, Tanzania attempted to lay off 18 000 public workers as a way of balancing the budget. Sir Lloyd Sandiford reduced the salary by eight per cent. Unions, be warned!
We need also to reinstitute limits on access to foreign exchange, especially through credit cards. When all was well with our foreign exchange, we had limits for the commercial banks in dispensing foreign exchange and there was no underground. We had to take our passports into the bank. There is a limit to modernisation if you do not have the resources.
It’s time that people have a look at that agreement with Sandals and, if necessary, make concrete modifications in favour of paying some sort of tax on the benefits acquired by the hotel having almost exclusive access to our premium commodity.
Harry Russell is a banker. Email: [email protected]