THE special two per cent stamp duty rate that the former PLP government granted the Ginn Development Company on real estate sales at its $4.9 billion West End project has no foundation in law, an attorney told The Tribune, and appears to contravene the Hawksbill Creek Agreement.

Fred Smith, a Freeport-based partner in Callender's & Co and a Grand Bahama Port Authority (GBPA) licensee, told The Tribune that the stamp duty incentives granted to Ginn and foreign real estate buyers, were "illegal and discriminatory". Mr Smith said: "I challenge the Ginn group and the Government to identify any law permitting that kind of a discount - a special treatment stamp duty rate - for their project. All my clients have to pay stamp duty rates up to 10 per cent. Laws in the Bahamas must apply to all and equally. Just because I am a developer possessing big bucks and developing a site doesn't mean the Prime Minister and the executive has any authority to cut through statute passed by Parliament and make any deal they want."

Mr Smith also explained that the typical stamp duty incentives appeared to contravene Clause 2 (28) of the Hawksbill Creek Agreement, the founding document for Freeport that laid out the framework for numerous business incentives designed to foster the creation of a new city and tax-free zone. "It is discriminatory, because under the Hawksbill Creek Agreement there should be no law which in any way exceeds the exemptions and benefits [Port] licensees are entitled to," Mr Smith said. "What is happening here is that licensees of the Grand Bahama Port Authority are being discriminated against because the Government entered into this agreement, which gives a substantial advantage for people to develop outside the Port area. What that agreement is doing is competing with the Port Authority and its licensees."

As revealed by The Tribune, the Ginn Development Company will only pay 2 per cent stamp duty on condominiums it sells in its Grand Bahama-based Ginn sur mer project during the development's first 20 years. The Heads of Agreement signed by Ginn for its multibillion dollar West End project lay out a substantial series of tax exemptions for the developer that were granted by the former Christie administration, but the Stamp Tax Act has never been amended by the Government to account for the special rate extended to Ginn. Instead, the former government had said it was looking to place these special stamp duty incentives into legislation designed to spur economic development in the Family Islands.

The Ginn Heads of Agreement, which have never been made public but have been obtained by The Tribune. reveal that any condos sold by Ginn for $250,000 or more in the period between the first sale and 20 years later will attract stamp duty at a rate of 2 per cent. The normal stamp duty rate applied to such real estate transactions valued at $250,000 or more in the Bahamas is 10 percent, effectively meaning that Ginn has obtained an 8 per cent discount from the Government.

This means that, on a $ 1million condo sold by Ginn, the stamp tax paid will be $20,000 rather than $100,000 - an $80 Million loss to the Public Treasury. Given that Ginn has said it has closed some $200 million in real estate sales at its West End project, given the 2 per cent stamp duty rate, that means $4 million will have accrued to the Public Treasury rather than $20 million that would have been received at the normal 10 per cent rate. It takes little imagination to think of what the $16 million given up could have been used for, in terms of utilities,infrastructure, schools and hospitals, and Bahamian realtors spoken to by The Tribune said the imposition of a 10 per cent stamp duty rate would have been unlikely to impact any Ginn sales.

If buyers can pay $1 million for a lot or condo, they will also have the wherewithal to meet a $100,000 stamp duty payment, so the logic goes.

There has been little criticism of Ginn regarding the Heads of Agreement it obtained, most people spoken by The Tribune saying "good luck' to the company after it was able to strike such an advantageous deal with the Government. Ginn is likely to have been in a position of negotiating strength, given that it had initially walked away from the project. The PLP government had to move quickly to entice them back in, and as a result probably had to offer a number of additional incentives Ginn had been seeking.

Ginn will also enjoy a 2 per cent stamp duty rate on unimproved lots that are sold for more than $250,000 during the first five years of the project, but what will probably raise more questions among Bahamians are the stamp duty exemptions granted to third-party buyers of unimproved lots, condos and homes at Ginn Sur Mer.

For all three real estate types - lots, condos and homes - if they are sold within one year of being bought by a third party buyer, the stamp tax rate is 3 per cent. In the second year, this rate is increased to 4 per cent; in the third year, 5 per cent; in the fourth year, 6 per cent; and in the fifth year, 7 per cent. From then on, the normal stamp duty rate applies, but this sliding scale is likely to attract criticism from some that such incentives will give 'free rein' to flippers and 'land speculators' to make fast money from selling Bahamian real estate, especially when Bahamians receive no stamp duty incentives for purchases.

Source: The Tribune