And while Said Musa’s absence put a damper on any drama at today’s House sitting, the real business of the day was the introduction of the Income and Business Tax Amendment Bill which proposes to increase the tax on phone companies to 24.5%. Officially it is to, “rationalise the rates of business tax” on telecommunication companies but its really about BTL which, as it was revealed today will, by the end of this year have withheld $2 million in payments it contracted to make for Intelco’s assets. If you’re scratching your head and wondering: “what does that have to do with business tax, the Prime Minister explained it today.
But he started off by discussing BTL’s record profits. As we’ve told you, the company net profit went up by $11 million –about 44%. Well by the Prime Minister’s reasoning, with that kind of profit, BTL can hardly complain about hard times.
Hon. Dean Barrow,
“Telemedia is saying that this additional tax, which will yield, around $3.5, $3.6 million annually will squeeze their operating margins and they say that there will have to be cutbacks in their investment and of course they raised the dreaded spectre of the possibility of layoffs. The net earnings, forgetting their talk about obsolescence and what that resulted in, their net earnings were then actually $41,800,000.
I don’t see how if you have a monopoly with respect certainly to land lines, you’re part of a duopoly with respect to the entire telecommunications sector, you’ve enjoyed that monopoly or duopoly status for years and years and years, you make $41 million in net earnings - I don’t see how you can say that paying an additional $3.5 million or $3.6 million in taxes will squeeze your operating margins so that you have to start to talk or threaten layoffs. It doesn’t make any sense.”
But beyond the record earnings, the Prime Minister revealed the tactical purpose for the tax. Remember Intelco? And how the Musa Administration made Social Security guarantee their loans? Well when the company went bankrupt, Social Security was left exposed. So government covered the debt with taxpayers money and then convinced BTL to buy four Intelco properties for nineteen point two million dollars. That’s the money government would use to mop up the entire mess. BTL signed a loan note and agreed to pay $19.2 million. Never mind that the phone company would likely recover it with higher rates, Government was just happy to cover it all up.
That was where it rested until March when the secret Accommodation Agreement was exposed and government refused to honour it. Since then BTL has similarly stopped honouring that Intelco loan note. No payments have been made since the end of March. And that’s what brings to what appears to be the real motivation for the business tax. The Prime Minister explained it in greater detail today.
Hon. Dean Barrow,
“BTL, Telemedia then BTL, in 2005 purchased a number of properties from the government of Belize. And that purchase was for a principal amount of $19.2 million. Now government transferred the properties to Telemedia but the purchase price was to be paid by Telemedia, then BTL, in 28 quarterly instalments of $685,714.29 beginning in June of 2006. Clause six of the terms and conditions appended to the loan note made it absolutely plain that there could be no offsetting of this amount owed to government. There could be no claim that, ‘but well government owes we for something else and so we won’t make our quarterly payments to the extent that government owes us.’
BTL commenced payment to the government of the $19.2 million owed in June of 2006 and continued to make the payments, obviously budgeting for these expenses, right through to March of 2008. It was only when the next quarterly payment thereafter was due to the government in June of 2008 that Telemedia declared to us that it would cease to make its repayments under the loan note.
Belizeans know that this government has had a hell of a time Mr. Speaker in collecting even the business tax due to it from Telemedia under the current law, at the current rates. The saga is too well known for me to have to rehearse this morning. We’ve gone to court over and over. BTL has said we don’t have to pay you because there was a secret Accommodation Agreement signed with us by the previous PUP that allows us not to pay business tax to the government and people of this country.
The Supreme Court of this country has indicated in a very clear and compelling decision that no Accommodation Agreement can displace, violate, subvert the right of the government to collect its taxes under law. But despite the clear position of the courts of this country, despite the clear position of the law, every month when the Income Tax Department tries to collect the business tax owing under the current law from Telemedia they refuse to pay and we end up before the Revenue Court. That’s costing us thousands of dollars. By the time it is all over, it will have cost us hundreds of thousands of dollars. Telemedia goes to the extent now of suing the Revenue Magistrate claiming damages against thee Revenue Magistrate for his having ordered them to pay on a particular occasion what is owed to the government and people by way of the business tax and having said that if you don’t pay, this order will be enforced by a warrant. They are now suing the Revenue Magistrate. Some people might say it is an effort to intimidate the Judiciary.
But what the government proposes to do in increasing their rate of business tax, it will have the effect that they contend for. You have only to recollect that the amount by which the business tax proposed to be increased is almost exactly equivalent to the amount that Telemedia was due in any case to pay under the loan. And since they had budgeted for those payments under the loan note, since those payments were an accepted part of their operational expense profile – how on earth can they say that paying it now, not by way of the loan note because that’s going to be their argument, paying almost the exact amount by way of an increase in the business tax can affect their bottom line.”
But there is a major development to report this evening. 7NEWS has learned that BTL today paid its business tax which is due on Monday. Now this is a very significant development because, as you just heard the Prime Minister say, the company has been withholding its business tax payments basically since March and government has had to go to court and issue arrest warrants to force BTL to pay in every case under duress.
But today they paid voluntarily, on time without court action. What is it an indication of? It’s too early to say, but it at least represents a change of strategy – but we wouldn’t go so far as to call it a change of heart.
