At their meeting on Wednesday 2nd March the Advisory Council reviewed a number of papers and recommendations presented by Chief Economic Adviser, Brian Titley. These included
(1) Establishing a new ordinance to facilitate the fractional ownership of property in the TCI
(2) Increasing operational flexibility in the TCI fishing industry to enable fleet operators to organize longer voyages into richer fishing grounds
(3) Amending the casino gaming tax régime to reduce the entry barriers for new small and medium sized casinos and introducing new legislation to facilitate and regulate sports betting and online gaming
(4) Amending the Land Holding Companies (Transfer Duty) Ordinance so that duty rates are aligned with the new stamp duty rates and valuation thresholds introduced in April last year
(5) Clarifying and rationalizing rules governing taxes and service charges levied by hotels and restaurants
Councillors subjected each recommendation to thorough scrutiny, with the proposed adjustment to the casino gaming tax giving rise to vigorous discussion. Councillors sought and received assurances that the amendment should not result in a rapid influx of new casinos or a dilution of controls to safeguard socially responsible gaming; rather it would level the playing field for existing operators and for any new investors in future. In consideration of the proposed adjustment to the Fisheries Protection Ordinance, there was a strong focus on ensuring that Belonger job opportunities would not be jeopardised by the change. The Acting Governor accepted the recommendations that will soon be brought before the Consultative Forum as necessary.
Mr. Titley said the changes involved modest but nonetheless important adjustments aimed at modernizing the economic and regulatory framework in the country and encouraging new activity’.
‘The great advantage of small economies should be their ability to react quickly and flexibly to changing market conditions. However, there are many obsolete laws and regulations in the Turks and Caicos Islands that impede this. Improving the regulation of markets, including through removing or modifying old and unnecessary legislation and restrictions, will remove some burdens on business and should release their potential for growth in the longer term’.
(1) Fractional ownership is a popular model for second and vacation homes in the US and Canada, and has been gaining interest in the region following the financial crisis and collapse in property markets in 2008. Fractional ownership overcomes the stigma, risks and complexity of timeshares by allowing purchasers to own part of the title of a property through shared ownership and usage. This can help boost sales and repeat visitor numbers.
Realtors in the Turks and Caicos Islands have welcomed the introduction of new rules to governing fractional ownership. Kathryn Brown, President of TCREA, said:
‘This is a positive step in encouraging investors to purchase real estate in the Turks and Caicos. Having a new ordinance in place creates a classification of regulations for the real estate professionals and more importantly, the clientele. For sellers it opens up an option that was not available previously. For the buyer it creates greater confidence to purchase’.
(2) The change to the fisheries protection ordinance will remove the requirement to employ a Belonger on every fishing vessel at all times while leaving open the opportunity for Belongers to work on the vessels and to participate in the wider fishing industry. The requirement for a Belonger to be on a vessel dates back many years and goes beyond current immigration and labour requirements for other business sectors. The industry has argued convincingly that it no longer reflects the economic and commercial realities facing the industry.
A number of industry representatives were invited to the meeting but some were unable to attend.
Mr. Jim Baker, CEO of Caicos Pride Products Ltd., who did attend along with Mr. Norman Saunders and Mr. Edwin Dickenson, said:
‘We are a small island economy and therefore well placed to have a vibrant fishing industry. Yet we have been in decline for years. We need to organize longer voyages to rich fin fishing grounds if we are to grow our industry to the benefit of South Caicos and all Islanders. If we cannot expand we cannot export or meet the volumes required by local supermarkets, households and restaurants, and we cannot provide much needed jobs and incomes’.
Fishing fleet operators have long reported problems attracting Belongers to work on their vessels and this was impacting severely on the viability of the industry. The Council members listened to arguments for and against removal of the restriction but agreed the industry should have the same operational flexibility as others in TCI while underlining the need for immigration and labour laws to be adhered to at all times.
Brian Titley also highlighted that he was discussing securing some funding from the Ministry of Finance for a laboratory capable of testing fishery products against a stringent set of international food safety requirements. This could allow locally caught produce to be sold into premium European markets and should also give local restaurants and supermarkets greater confidence to stock local fin fish.
(3) The Council membership agreed that modifying the casino gaming tax and removing restrictions on sports and online gaming would create a level playing field for inward investment in these sectors, providing an enhanced set of attractions to grow the tourist base with the potential for generating additional employment opportunities and a flow of public revenues. Council noted the need for strong oversight of the casino and gaming sector.
The new casino gaming income tax will be progressive with rates rising from 5% on the first $500,000 of monthly gaming table income to 20% on gaming income over $1.5 million per month. This reverses a system first introduced in TCI in 1999 for the American Casino based at the Allegro resort and which closed its doors for the last time in 2004. This tax structure is highly regressive with marginal tax rates starting at 15% and then falling to 2.5% on higher slices of income. This it was argued will inhibit the creation of new small and medium sized casinos, and therefore limit competition in the sector. It is uncompetitive in the region and will therefore reduce the attractiveness of the destination to some tourist market segments. The new rising rate structure will be revenue neutral at present but will allow TCI Government to share more in any upside in future casino revenue streams.
The Council also heard how the remote gaming global market is expanding rapidly and that many countries, including in the region, are competing to attract and regulate remote gaming operations to boost public revenues flows. These can include income from license fees and annual routing fees as a percentage of turnovers of offshore businesses in the sector. Council agreed it was prudent for Government to consider how to best to regulate, tax and encourage socially responsible sports and online gaming, rather than to seek ineffective ways to outlaw it and that TCIG should therefore investigate and import international best practice, including from Antigua and Barbuda, Gibraltar, Curacao, Australia, France and the UK.
(4) Land transfer duty is currently payable at 8% on the value of transfers of stock in land holding companies but is thought to be routinely avoided. In November 2009 the Government agreed an additional rate of just 0.2% should be introduced on the value of transfers of new equity issued to raise finance to help retire land holding companies retire expensive debt or fund business expansion.
The further changes announced at the Council meeting will now introduced progressive transfer duty rates that mirror those introduced for stamp duties in April 2010 and more significant penalties for transfer tax evasion. This move recognizes that the taxable base under both ordinances is essentially same, notably the underlying property being transferred either through direct purchase or sale of company stock. At present rates it means it will be cheaper to sell the title to a property worth say $1million than to sell $1 million of shares in the company holding the property since the former is taxed at just 6% on Providenciales or 3% on Grand Turk, as opposed to a land transfer duty rate of 8% on the latter. The reverse is true for sales of property over $3 million in value on Providenciales. The change will therefore remove this anomaly in the tax laws.
(5) Finally, the council noted that rules governing hotels and restaurants concerning the addition of restaurant taxes and service charges to final customer bills needed to be clarified to ensure, firstly, that all large restaurants were compliant and that service charges should be discretionary and added only as an optional payment to customer bills, at all establishments except those, like Beaches, that sell accommodation, meals and other services together as an all inclusive package. The council agreed that wherever service charges were collected they should be paid over in full to all employees. This removes the discretion of an employer at a non-inclusive resort to retain up to 40% of any service charge income and also removes the role for a Minister of Finance to determine allocation systems at individual establishments.
