Will tax concessions for new businesses finance predatory pricing against existing hotels?
If you have not already, I implore you to read, especially if you are involved in tourism or financing, what in my humble opinion is an excellent article entitled ‘The La Source Saga’. The author, S. Brian Samuel, spent 20 years with the World Bank primarily working on the Caribbean Project Development Facility with the specific task of raising finance for regional businesses.
Brian honestly admits that La Source was one of his favourite projects and in fact on retirement he took up the post of Executive Director when it re-opened in February 2008 after the ravages of Hurricane Ivan.
Within three years of its original opening La Source financially broke-even and achieved a year round occupancy of between 72 and 78 per cent, prior to Ivan striking the island. Even with just 100 rooms, which then represented only 8 per cent of Grenada’s total room stock, it was providing a staggering 20 per cent of the entire hotel guests to the destination.
The article goes on to graphically detail the challenges that followed, leading up to a second closure, or as the writer describes it, ‘Death and Rebirth’.
Faced with mounting unemployment, declining revenue and a real risk of losing further airlift, the Government of Grenada had to do something and I understand that Sandals had already expressed an interest.
To seal the deal, the then Minister of Finance, Nazim Burke, gave them ‘something special’ and concessions granted included:
- 29-year waiver of corporate taxes
- 25-year waiver of property taxes
- 25-year waiver of customs duties on capital goods
- 25-year waiver of customs duty on consumables
- 15-year waiver of VAT (Value Added Tax).
For any type of business these inducements must be considered extraordinary. Only time will tell, after an estimated US$100 milion has been spent enhancing and adding rooms, whether it all will be worth it when the scheduled re-launch takes place as planned on 12th December 2013.
Faced with an even greater crisis scenario locally in Barbados, including 37 closed hotels, plummeting arrival numbers and the loss of something approaching 60,000 airline seats alone within the last year, it was never going to be easy for our Government to find a perfect solution for Almond Beach Village.
Sadly, despite the promise of greater transparency and accountability in the 2008 DLP Manifesto, I doubt if the taxpayers of Barbados will ever learn the full extent of the incentives given to entice Sandals and Beaches to our shores.
But there are other very serious implications that must be taken into account with potentially detrimental consequences. If substantial tax breaks are given, will this now disadvantage our existing accommodation providers? After all, they will have to compete with the two new brands and can that still happen on a second uneven playing field?
Will competitive advantages gained by the concessions, enable Sandals and Beaches to undercut existing tour operator rates and switch sell customers from other hotels?
For sure the CEO’s of established hotels and potential investors are already asking these and other pertinent questions.
Years later many of our smaller hotels are still recovering from the decade or more of systematic predatory pricing, practised by GEMS (Hotels and Resorts Ltd).
‘We’ have to be very careful not to create this situation once again that may force other properties out of business.