Go Lean…Caribbean

Go Lean Commentary

The catch-phrase “Think Global, Act Local” does not only apply to “green” conservational objectives, it also applies to trade promotion. Though not officially adopted as a mantra for the World Trade Organization (WTO), this catch-phrase is the ethos by which they administer their policies.

The words “World” and “Trade”, combined together should signal the spirit of doing commerce as global citizens, not reserving a market for some special interest group, even if the special qualifier is just citizenship.

World Trade coordination is a new creation, a product of 20^th century post-WW II reconstruction. The prevailing ethos beforehand was that “all men were created equal, but some were more equal than others”. This status quo, with features like colonialism, was fraught with societal defects that would just continue to spurn uprisings. A better eco-system was needed. From this planning – Photo here – came the structure for the World Bank, International Monetary Fund (IMF) and the International Trade Organization (ITO). The ITO was proposed in 1948, but never fully ratified. In its place, a weaker framework was enacted branded GATT for General Agreement on Tariffs and Trade. The goal was to tear down all the inequities with inter-country interactions that caused so much dissension. (The planet could not risk another global war). GATT remained the standard for almost 50 years, until finally the formation of the newly-branded WTO, which ascended on January 1, 1995.

The goal of the ITO/WTO was to be a United Nations’ specialized agency that would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the original ITO treaty was not approved by the U.S. and a few other signatories and never went into effect.^[17][18][19] The WTO has all of these countries’ full participation and all these attributes. It’s a New World Order.

The WTO is not mandatory; it’s a club and membership has its privileges…and responsibilities. The book Go Lean…Caribbean had always encouraged participation in this club (Page 119); urging joining and conforming to the international standards. Why? The region depends on the global market – imports of all commodities and exports of services like tourism. So we are already participating in these “club activities” whether we want to or not. We had better get the full benefits. For starters we would get voting rights par-for-par with the big trading countries like the US and Canada, and EU member-states. We would get a voice and a vote; something missing in our current US interaction, where foreign, trade and security policies often times do not align with the priorities of the Caribbean. Even more, no Caribbean member-states, even US Territories, have voting powers in the US Capitol where those policies are codified. It is what it is!

Click on photo to Enlarge

The World Map Photo here depicts the Commonwealth of the Bahamas in a Red Circle, indicating that the WTO status is still pending. There are a number of provisos that must first be put in place. This article relates one such requirement:

Title: WTO To End Property Tax Advantages For Bahamians
By: Neil Hartnell, Business Editor

NASSAU, Bahamas — The Bahamas will have to eliminate its nationality-based real property tax exemptions that discriminate in favour of locals before it becomes a full World Trade Organisation (WTO) member, a report warning the current system is “not in accordance with international practice”.

The ‘Conditions for improving real property tax in the Bahamas’ report, never before revealed to the Bahamian people, thus warns that the exemptions enjoyed by Bahamian ‘vacant land’ owners in New Providence, and in every Family Island [(Bahamas Out Islands)], will either have to be completely changed or abandoned.

The report’s authors, Dr Roy Kelly, Dr Graham Glenday and Wayne Forde, said: “Exempting property based on the nationality of the property tax owner is not in accordance with international practice.

“This nationality-based exemption will need to be changed when the Bahamas joins the WTO, since the Bahamas will not be allowed to differentially tax based on nationality.”

The Government, via the Ministry of Financial Services, has already given notice of its intention to continue with the WTO accession process, with new minister, Hope Strachan, effectively saying she has picked up where her predecessor, Ryan Pinder, left off.

Messrs Kelly, Glenday and Forde thus called for the Government to review all property tax exemptions extended to Bahamians only, reiterating that these would need to be eliminated upon WTO accession.

“This means that the current exemption on unimproved land owned by Bahamians on New Providence will need to be adjusted. In addition, the current exemptions given to Bahamians on all property on the Family Islands will need to be restructured,” they warned bluntly.

This provides further evidence of how the ‘rules of the game’ for the conduct of business in the Bahamas will change suddenly, and dramatically, once this nation accedes to full WTO membership.

It is unclear how many in the private sector, and wider Bahamian society, have been paying attention to this, given that Value-Added Tax (VAT) and possibly now National Health Insurance (NHI), have dominated the policy agenda.

The ‘Conditions for improving real property tax in the Bahamas’ report, meanwhile, went further in calling for the Government to review what it described as “several unique and generous tax exemptions and relief schemes” when it came to real property tax.

In particular, it called for the $250,000 ‘exemption threshold’ for owner-occupied real property tax to be reduced back to $100,000.

Explaining the rationale for this recommendation, it said: “First, the current owner-occupied exemption of $250,000 is substantially higher than those in the neighbouring United States.

“Second, the exemption is not means-tested, meaning that the exemption is given to rich and poor alike, perpetuating inequity. Third, the level of exemption was increased without a systematic updating of property tax roll values. Fourth, the exemption is difficult to administer to ensure that second homes are not also receiving a second exemption.”

Messrs Kelly, Glenday and Forde said the $250,000 Bahamian exemption was more than 2.5 times’ higher than the largest equivalent in the US, where exemptions ranged from $7,500 to $100,000.

“Increasing the exemption levels, while not systematically adjusting the property assessed values to be closer to market values, means that many properties drop off the property tax roll through reverse ‘bracket creep’,” the report said,

“It is reported that the increase in the exemption level from $100,000 to $250,000 reduced the number of taxpayers substantially, eliminating many properties from the tax roll. Due to the lack of an effective reassessment process, many of the owner-occupied houses have not been revalued in many years. “Thus, increasing the exemption by 150 per cent, while not reassessing the properties to keep up with real market value, meant that many houses fell below the valuation threshold.”

Messrs Kelly, Glenday and Forde also described the exemption Bahamians enjoy from paying real property tax on any Family Island as “overly generous”, because it made no distinction between rich and poor persons, plus high value and low value properties.

“Both rich and low income Bahamians are tax exempt from the property tax, thus not directly contributing to the payment for government services on the Family Islands,” the report said.

“There is no good reason why richer Bahamians (owning expensive properties) on the Family Islands should not be contributing to the payment for government services.”

And, significantly in the current context, Messrs Kelly, Glenday and Forde recommended that real property tax be imposed in Freeport from August 2015 onwards.

“As with the exemption granted to hotels, the Hawksbill Creek Agreement provisions on property taxation should also be reviewed, with property brought into the tax net upon expiration of the current agreement,” they argued.

Many Bahamas-based resorts are exempt from paying real property tax for up to 20 years under their Hotels Encouragement Act agreements, thus ensuring they enjoy a substantial concession, while the Government suffers “quite large” revenue losses.

“The property tax exemption for hotels, rental pooling, and time shares should be reviewed and reduced,” the report recommended.

“Although perhaps well intentioned, the generous property tax exemption on hotels and other tourist-related investments may be extravagant and unwarranted, potentially allowing hotel investments to be property tax exempt for up to 20 years.

“This exemption provides a major subsidy to the hotel investors, and to users of those hotels who receive government services without paying the property tax and the true costs of government-funded services.”

Calling for the Government to conduct cost/benefit analysis of all its tax exemptions, the report said: “Countries do provide a number of tax exemptions to stimulate economic development.

“These tax exemptions should be costed and monitored to evaluate the impact from the exemption, and to ensure that the property is brought on to the tax roll at the conclusion of the exemption. In accordance with international best practice, all property tax exemptions should be included in the property tax act to encourage greater transparency.”

Messrs Kelly, Glenday and Forde concluded: “To mobilise increased property taxes in an equitable and efficient manner, the Government must review existing tax base exemptions, potentially leading to a broadening of the tax base.

“As identified above, the tax base currently has very generous and perhaps unnecessarily generous exemptions, which dramatically reduces the potential property tax revenues and introduces possible, un-intentional impacts on the equity and efficiency of the tax system.”

No property tax advantage for Bahamians over foreigners?!?! That is a big change for the Bahamas. They have a Bahamian-ization policy that prioritizes citizens over foreigners in so many societal endeavors. See VIDEO in the Appendix below.

The whole policy is flawed. (Bahamian-ization calls for all Bahamian businesses to at least be owned 51% by a Bahamian citizen).

This policy was communicated previously in a blog/commentary where the business community there was complaining about the lack of skilled labor in the marketplace and the impediment that the Bahamian-ization policy has forced on the local market. Job creation is affected.

There are also similar complaints related to investments, property ownership, gambling, immigration-citizenship, education and other facets of society.

“All animals are equal, but some animals are more equal than others”. – Book: Animal Farm by George Orwell (1945)

The tongue-in-check allusion in this expression is more apropos, (and stands in contrast):

The Golden Rule: He who has the gold makes the rules.

The motivation of Bahamian-ization was always to neutralize corporate abuses.

The book Go Lean… Caribbean posits that the Bahamas cannot succeed in a world of globalization leading with this Bahamian-ization policy. Foreign Direct Investors will be less inclined to “plant” in a country with little chance of prospering. They will be inviting a second class existence for themselves, spouses and children. That policy “acts locally” with no consideration for global ramifications. (Mostly, the only qualifying Bahamian for new business endeavors is the government). On the other hand, the book urges regional federalism, asserting that the best solution is a regional integration with all Caribbean member-states, despite the colonial or language legacies. The book therefore serves as a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU). This represents a confederation, a brotherhood, of the 30 member-states of the Caribbean region, including the US Territories (2): Puerto Rico and the US Virgin Islands); the French Territories (5); 6 Dutch Territories constituted as 1 member; British Overseas Territories (5) and independent states and Republics (17).

This would mirror the European Union (EU) participation in the WTO where there is a dual membership. The  Caribbean Union Trade Federation is modeled after the EU, with the regional focus on Trade for the Caribbean.

The words “Caribbean” and “Trade”, combined together should signal the spirit of doing commerce as regional citizens. This CU/Go Lean roadmap therefore extolls the priority of trade, not nationalism, in the execution of its prime directives; defined by these 3 statements:

• Optimize the economic engines of the region to grow the GDP of the economy to $800 billion and create 2.2 million new jobs.
• Establish a security apparatus to protect the resultant economic engines.
• Improve Caribbean governance – including tax collection and Self-Governing Entities – to support these engines.

The Go Lean roadmap opens with the call for the consolidation of trade negotiation for the Bahamas, and the rest of the Caribbean – treating everyone as equals. This point is echoed early, and often, in the book, commencing with these opening pronouncements in the Declaration of Interdependence (Pages 11 – 14), as follows:

viii.  Whereas the population size is too small to foster good negotiations for products and commodities from international vendors, the Federation must allow the unification of the region as one purchasing agent, thereby garnering better terms and discounts.

xi.   Whereas all men are entitled to the benefits of good governance in a free society, “new guards” must be enacted to dissuade the emergence of incompetence, corruption, nepotism and cronyism at the peril of the people’s best interest. The Federation must guarantee the executions of a social contract between government and the governed.

xiv.  Whereas government services cannot be delivered without the appropriate funding mechanisms, “new guards” must be incorporated to assess, accrue, calculate and collect revenues, fees and other income sources for the Federation and member-states. The Federation can spur government revenues directly through cross-border services and indirectly by fostering industries and economic activities not possible without this Union.

xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

xxx. Whereas the effects of globalization can be felt in every aspect of Caribbean life, from the acquisition of food and clothing, to the ubiquity of ICT, the region cannot only consume, it is imperative that our lands also produce and add to the international community, even if doing so requires some sacrifice and subsidy.

The Go Lean roadmap specifically details steps to optimize property taxes for the region’s member-states. The plan is to deploy advanced government systems for property assessments, registration and tax collections. The CU will deploy these systems and share the utilization with the member-states. This is classic e-Government in-sourcing and out sourcing. The financial eco-system will even provide predictive funding for the member-states based on these new efficiencies.

The Bahamas needs help with their “property tax” eco-system.

The Bahamas is currently operating only at 40 per cent of its tax capacity, according to a Government-engaged consultancy. They have warned the country, ranking this nation at near-bottom of a list of 98 countries… “The IMF has estimated that The Bahamas collects only 40 per cent of its maximum attainable tax-to-GDP ratio as determined by the economic structure of the country, a metric on which it ranks 92nd out of 98 nations,” [Consultancy] Compass Lexecon said. “In comparison, Sweden and Denmark collect 98 percent of their tax capacity.”

The Bahamas, and other Caribbean member-states for that matter, can do better.

For example, if the Bahamas Ministry of Finance should be collecting $160 million in property taxes for 1 year, then the CU (Union Revenue Administration) can issue a discounted check – or a warrant – for $140 million and engage the collections directly, to recoup $160 million. This is classic Agent-Principal servicing, with the exception of no profit motives for the agents. The CU is the agent! (This example relates only to property taxes, not the newly enacted VAT regime launched in country on January 1).

This is the hallmark of a technocracy.

Go Lean … Caribbean therefore constitutes a change for the Caribbean. This is roadmap provides the tools/techniques (but without sovereignty) to bring immediate elevation to the region to benefit one and all member-states.

How?

The book details the community ethos to forge such change; plus the executions of the following strategies, tactics, implementations and advocacies to empower the governing engines to better deliver on the Social Contract for Caribbean stakeholders:

The issues in this commentary are important for the development of the Bahamas and the rest of the Caribbean. There is the need to fully participate in the WTO; it is the only way to fully compete in a globalized marketplace. This is the new regulatory regime for the free market. Free market dynamics are normally based on supply-and-demand. The Caribbean, with its small population and market-size cannot compete with the voluminous demand nor voluminous supply of some of the bigger countries (i.e. China, India, EU, the US, etc). With the one-man-one-vote (one-state-one-vote) structure of the WTO, we will truly be able to compete with the bigger states.

WTO calls for level playing fields. A member-state cannot give preferential treatment to one group within the population over another group within the population. For the WTO, “all men are treated equal, period!”

There is no place for Bahamian-ization; no place for nationalism from any Caribbean country. Say Goodbye to the past. Say Hello to the future, the new landscape for world trade.

The Go Lean book is a detailed turn-by-turn step-by-step roadmap for how to lean-in for this new regime, and how to pay for it. We now urged everyone in the region, all stakeholders (citizens, Foreign Direct Investors, trading-partners, business establishments) to lean-in to this roadmap. Let’s fulfill this vision: let’s make the Caribbean region a better place to live, work and play. 🙂

Download the book Go Lean … Caribbean – now!

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Appendix – VIDEO: Bahamas Minister of State for Investments Khaalis Rolle on foreign direct investment in The Bahamas – https://youtu.be/THD7Yejp1fs