Island Luck (IL) says it will lay off 350 employees within 30 days.
This is the second gaming house operator to announce significant terminations this week after Parliament approved a plan to raise taxes on gaming house revenues.
In a letter to Gaming Board Acting Secretary Ian Tynes yesterday, Island Luck CEO Sebas Bastian advised the board of its plan to let go of half of its staff.
“As you are well-aware, the government of The Bahamas has proposed and is in the process of enacting into law, a new tax structure that specifically targets the domestic gaming sector,” the letter reads.
“This proposed new tax structure makes The Bahamas domestic online gaming industry one of the highest taxed jurisdictions in the world, according to independent gaming experts.
“As we have indicated on numerous occasions, we do not oppose a tax increase.
“In fact, we have budgeted and planned for a tax increase.
“However, to our dismay, the quantum and nature of this proposed tax structure is unprecedented in its deviation from established international best practice standards, and its disregard for the wide range of negative potential unintended consequences, including loss of jobs, increased reputational and regulatory risk of The Bahamas and driving customers to the illegal unregulated black market.
“Based on our current business model, operating infrastructure and operating cost structure, this proposed new tax structure will increase our tax liability by almost 200 percent, and will result in the government of The Bahamas, through taxation, claiming close to 85 percent of our earnings before taxes.
“As a result of this proposed exponential increase in our tax obligations, the executive management team was directed by our board of directors to perform a comprehensive and holistic impact assessment with a view to optimizing our strategic positioning, operating effectiveness and business model to align with the reality of the new proposed tax structure.
“Consequently, it is with some regret that we notify you that, as a result of our review and assessment, we have no alternative but to make material modifications to our business model and operating cost structure, which unfortunately will include reducing our staff count by approximately 50 percent, or about 350 staff members.
“We hereby formally notify you of our intent to reduce our staff count by up to 350 persons starting within the next 30 days.”
The letter was copied to Gaming Board Chairman Kenyatta Gibson.
Island Luck said it advised the Department of Labour of the “unfortunate exercise”.
In a separate notice to its employees yesterday, Island Luck advised that it will conduct performance assessments of all staff over the next 21 days.
It said, despite its tireless work to mitigate the impact of the proposed sliding tax scheme, its efforts have been unsuccessful.
While committing to continue to work diligently, Island Luck said it must now prepare for an “unfortunate reality”.
“Our staff and human capital have always been our most valuable asset,” IL said.
“Your contributions have been invaluable to our success.
“Unfortunately, as a result of this unprecedented, significant and drastic increase in our operating cost, structure through government taxation, we have been forced to confront some difficult choices that arguably businesses in a free market economy should never be forced to confront.
“In light of this, the human resources department in conjunction with the district managers will be conducting performance assessment exercises for all staff members over the next 21 days.
“It is important to note that this performance assessment exercise will not serve as a determinative factor with respect to any downsizing decisions, but will be a factor in the event of store closures and redundancies.
“We will do our best to mitigate against store closures and job losses and we will do our best to ensure transparency and fairness to support our staff during this period.”
The announcement of the 350 job losses came two days after Asure Win gaming company announced that it will close 11 of its locations nationwide and terminate 50 employees after a number of the locations were found to be “underperforming”.
The company said it was taking preemptive action in the face of the government’s decision to increase taxes on the sector.
On May 30, the government revealed that gaming house revenues up to $20 million will be taxed at a rate of 20 percent; revenues between $20 million and $40 million will be taxed at a rate of 25 percent; revenues between $40 million and $60 million, at a rate of 30 percent; revenues between $60 million and $80 million, at a rate of 35 percent; revenues between $80 million and $100 million, at a rate of 40 percent and revenues more than $100 million at 50 percent.
According to the government, only the portion of revenue that falls within the tax bracket will be taxed at the new rate.
The government has also proposed taxing gaming patrons through a five percent stamp tax applied on deposits and any non-online games or digital sales.
The increase takes effect July 1.
The Bahamas Gaming Operators Association has decried the move and made the case that the government justification for the increase does not hold up to scrutiny.
The association has also warned that the tax increases will result in the loss of more than 2,000 jobs across the sector.
It has called on the government to seek the advice of independent gaming experts and provide empirical evidence that the move is “equitable” as the government has claimed.
When he spoke during the recent budget debate, Minister of Tourism Dionisio D’Aguilar foreshadowed that some operators would have to close their doors.
He predicted that, of the seven licensed gaming house operators, three of them that “are either too small or have been increasingly losing market share over the past three years” will close their doors unless something dramatic happens.
The minister added that if the sliding scale of taxes proposed on the gaming operators becomes too “onerous” and “undesirable” the government will adjust the taxes.
The government expects to collect $70 million in the 2018/2019 budget year from gaming houses, nearly double the $36.5 million it collected during the 2017/2018 period.
Bahamians spent over $500 million on gaming in 2017, according to the government.