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Government defends tax break plans for hotel development

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Fairmont Southampton Beach Club — an artist's impression (Photograph supplied)

The Government has defended its plan to extend tax breaks to boost tourism despite concerns raised by a former finance minister.

Curtis Dickinson, who quit the post in February, warned that he generally did not support concessions for hotel developments beyond the current maximum term of ten years.

But a government spokeswoman said this week: “Extending tax relief is one of the tools that governments in other notably successful tourism destinations have used to support hotel development and spur increased tourism activity.”

She added that the extent of government support for the Fairmont Southampton was still being negotiated.

Karim Alibhai, the principal of Gencom, which owns the hotel through its subsidiary, Westend Properties, said earlier that tax relief would help to cover the costs of a $400 million investment — including $200 million of renovations — at the property.

David Burt, the Premier and Minister of Finance, pledged to increase the duration of incentives as part of his Budget statement in February.

The Royal Gazette asked what concessions were expected to be given to Gencom.

A spokeswoman said: “In his statement on February 4, the Premier noted that Cabinet had approved a special Act of the Legislature which would ‘include enhanced support in terms similar to those set out in the Tourism Investment Act 2017’.”

She added that the extent and duration of concessions will also "form part of the special Act“.

But the government spokeswoman added: “The Premier is on record as saying he supports a longer period for the grant of such relief.”

David Burt, the Premier and Minister of Finance (File photograph by Akil Simmons)

Mr Burt said in his Budget statement that the Progressive Labour Party administration doubled the length of concessions for hotel developments from five to ten years in 2017.

He highlighted an increase in the number of guest beds in the Turks and Caicos Islands after relief was extended to 25 years.

Mr Burt added that “there are jurisdictions in the Caribbean that offer 30 years or more of tax concessions”.

He said: “This Government will this year introduce amendments to the Tourism Investment Act to increase the duration of concessions available to hotel developers in Bermuda.”

The 2017 Act provided for tourism investment orders for projects “in the national economic interest of Bermuda”.

It said that relief can be given from customs duty on building materials and other equipment for no more than ten years from the opening date of a new hotel or five years in the case of a refurbished hotel.

Exemptions from hotel occupancy tax and the employer’s share of payroll tax can also be granted.

Curtis Dickinson, the former finance minister (File photograph)

Mr Dickinson said last month that he believed the existing legislation was “more than sufficient”.

He said that in a 2019 letter of intent entered between Gencom and the Government, which expired at the end of 2020, it was thought that "the developers would have benefited from a reduced rate of interest on the debt that the Government was contemplating providing a guarantee on“.

Mr Dickinson explained: “The combination of interest cost savings and tax concessions could deliver the developers significant savings in the millions of dollars.”

He said: “Any increase in the concession period would result in even greater cash savings and benefits to the developers.

“Additionally, the precedent would be set for similar grants of concessions for other hotel developments.”

Mr Dickinson added: “Given the Government’s current fiscal position, is it prudent to give future tax revenues to developers who by virtue of their own financial returns projections would already be projected to earn multiples of their invested capital?

“Even if changes to existing tourism incentives are warranted, perhaps the analysis should be completed first for the industry at large rather than predicated on a single request.

“Otherwise, the overall cost could be astounding, and without the analysis I am unsure if it will be worth the rush.”

Mr Burt told the House of Assembly last month that an agreement was reached between the Government and Westend Properties.

He added that the arrangement was set out in a heads of terms document, which was approved by Cabinet.

Replying to a question from Cole Simons, the Leader of the Opposition, the Premier said that support will include a guarantee.

He added: “Once the guarantee is confirmed, that will be tabled in this House based on the Government Loans Act.”

Mr Burt said: “This Government has signalled that there will be a special Act of Parliament that will be brought to this House when we return where the details of the full financial commitments of the Government of Bermuda will be fully spelt out.”

He added that the guarantee figure was not finalised at that time.

Karim Alibhai, the founder and principal of Gencom (File photograph)

Mr Alibhai told the Gazette that a financial institution was prepared to loan against tax receipts to cover part of the capital for the Fairmont Southampton project.

He added: “So the government guarantee, at the end of the day, is really collateralised by these very senior tax receipts, number one, and it’s really a fraction of the project cost.

“It’s not taking the completion risk.”

The government spokeswoman said this week: “The full scope of the Government’s support continues to be in negotiations following the agreement with Gencom of heads of terms.”

In response to a question about whether the guarantee will cover the full loan amount and what conditions must be met, she cited the Premier’s remarks from March 25.

Mr Burt said at the time: “The agreement we have reached is the ‘end of the beginning’.

“There is more work to be done.

“Both sides now must deliver on those conditions set out in the agreement, and the Government’s first task is to set about crafting the legislative support required that will be brought to this Honourable House when we return.”

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Published April 08, 2022 at 7:58 am (Updated April 08, 2022 at 7:48 am)

Government defends tax break plans for hotel development

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