“To lay, with one hand, the power of the government on the property of the citizen and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes is none the less a robbery…” ~ Samuel Miller
In an act screaming of blunderbuss and willful myopia, last weekend, the Government of Grenada saw it fit to award a multi-million dollar private enterprise (Sandals Resort International) a multiple tax break. A tax break embodied as a sweetener of almost coma-inducing diabetic proportions in the name of development and job creation.
It was with a total suspension of belief that we both witnessed the Minister of Finance, a self professed economist; proudly boast of the “economic incentives” that would continue to line the pockets of Sandals for the next three decades. Sandals’ own CEO confirmed the agreement between Sandals Resort International (SRI) and the government of Grenada by which the government of Grenada waives corporate taxes for 29 years, property taxes for 25 years, customs duties on all capital inputs for 25 years and an extension of the duty waiver on alcohol from the usual 15 to 25 years. Cue series of exclamation marks. These waivers are return for the purported $100 million dollar investment SRI would be making in Grenada, which is a fallacy as would be explained.
In layman’s terms (because taxation jargon is notoriously opaque) this means that Sandals pays zero taxes on all profits it makes in Grenada. For thirty years. Corporate tax stands at 30% so Grenada will lose 30% taxes on hundreds of millions of dollars. Further, the press release issued by Sandals also states that this alleged $100 million “investment” into La Source covers the cost of lands and additional property acquired from the Taylor family. This means the real “investment” figures are therefore much lower than the 100 million dollars advertised. So although the purchase of property comprises a significant part of the deal, Sandals will not even pay the 0.3% tax on the land it acquires or the 0.02% tax on its buildings; and it will not do so for any other land it acquires for 25 years. In addition, any equipment or structures that Sandals chooses to import will be duty-free for 25 years and it will be free to import as much alcohol as it wishes to for its all-inclusive guests, without duty, for 25 years. Even to those of us who do not profess to be economics graduates, this deal reeks of the word “mistake”.
It certainly isn’t our intention to belittle an investment of $100 million US dollars (or rather far less, as earlier explained) in these tight economic times. Even with the promise of an additional 200 jobs raising rising to a headcount of 400 based on Sandals’ press release. Still the forbearance on the revenues given a waiver in this deal strikes as way too much given for way too little. Must we always genuflect before these gods of “foreign investment”? Without a doubt, with some ingenuity, creativity and imagination, our own local manufacturing and agro industries could be supported in a similar fashion to create much more than 200 jobs, and without requiring such deep tax cuts.
For a nation as indebted as Grenada, the implications of these terms are profound. With an ever increasing unemployment rate, glaring social issues requiring governmental funding, an inability on multiple occasions in recent months to cover the payroll needs of public servants including teachers, doctors and nurses, potential default on its debt obligations, and a health care system on the verge of collapse, Grenada is already in an emaciated financial position. Its coffers are too malnourished to withstand this gluttonous forbearance on essential revenue for the next thirty years. Can we afford to postpone much-needed deposits into our national Treasury? How will the employment of an additional two hundred locals, most, in low-paying roles, stimulate economic growth? This deal smacks of a hastily contrived opportunity to woo public confidence. Even accepting that tax breaks were necessary to close the deal, reduced corporation tax in a staged and contingent manner possibly on the first year of profit or for a limited number of years, would have been a sensible option. It may be that the negotiators are not familiar with more nuanced form of taxation policies such as reinvestment credits, tax abatement by specific percentages for specified periods, or reduced sector rates, all of which would have been much more suited to the project than a flat rate tax holiday.
All of the above is without even referencing the solid economic theories underpinning economic development and international trade studies by the World Bank, the United Nations and academic institutions. Research from these institutions find that tax incentives do not increase the aggregate amount of foreign investment available to developing countries. In addition, they have found these incentives do not create a net transfer of taxation from taxpayers to investors. In other words, our Grenadian vendors, teachers, policemen and nurses are subsidizing and financing Butch Stewart.
We preface the above to say that we are not opposed to Sandals’ presence per se in spite of our personal objections. Grenadians reliant on jobs related to this industry will be more than grateful. However, we must note Sandals’ very ethos is reliant on the “all-inclusive” sale, where the local environs inevitably suffer because all accommodation, meals, soft drinks, tips, recreational activities, entertainment and drinks are included in a flat rate cost, disincentivising local expenditure. Sandals’ guests will not be encouraged to get out of their infinity pools sipping their tax free Mai Tais to patronise and support our local economy. Most of our tourist and spice market vendors in the market will not benefit. Most of our local restaurants will not benefit. Only a few selected tour operators will benefit, if at all. Instead, land prices will increase, there will be a drain on our water resources (these infinity pools do not come cheap) and our local suppliers will be priced out of the market. Not to mention the thousands of well educated underemployed or unemployed young adults who will remain so under this acclaimed deal.
This decision is also a foolish one because it belies our naïve and amateur approach to marketing and foreign investment and our inability to recognise that our country is a partner, not a charity. With frequent plugs on Wheel of Fortune and countless tourist magazines, Sandals is a well known and highly publicized luxury brand. But so is our country. It is significant that the chain boasts of world class locations in Jamaica, St. Lucia, Antigua and the Bahamas. Yet, we note that Butch Stewart stated during his press conference, announcing Sandals’ arrival to Grenada that this was a dream realized after twelve years of pursuit. Grenada is in a unique position; it boasts unparalleled beauty, has a very low crime rate and a highly educated work force. In our view, packaged right, this should be incentive enough.
This unreasonably large tax deal has done nothing more than to undercut local hoteliers and to create a precedent for investment opportunities- now that this deal is public, no other investor will be inclined to invest in Grenada for any less. Via this deal, our political leaders have essentially presented Grenada’s economically struggling rump for a very long and public ravaging.
Akima Paul is a UK and US qualified lawyer. She studied Law at the University of Cambridge and the University of Paris. In her free time she enjoys reading and creative writing.
Salisha Francis is a member of Grenadian Diaspora currently residing in Germany. She attended Saint Joseph’s Convent St. George’s before migrating to the USA. Salisha acquired her BA in Psychology from the College of Notre Dame of Maryland. Her plans are to return to Grenada to contribute in the field of social services.