The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A major accounting firm has urged Atlantis and Baha Mar, and major food stores, to approach the Government and work out “a fair recovery of Value-Added Tax costs” due to their split tax treatment.

KPMG, in an analysis of the draft Bill and regulations, warned that hotels and food stores - which sell both ‘exempt’ and taxable products and services - would only be able to recover input VAT paid on the latter aspect of their business.

As an example, KPMG said that if a food store’s total inventory was split into 40 per cent VAT ‘exempt’, and 60 per cent ‘taxable’, the business will be unable to recover 40 per cent of the VAT paid on overheads such as rent, electricity, transportation, imported services and administration costs.

This, the accounting firm added, would also apply to the four hotels currently offering casino gaming - Atlantis, Baha Mar, the Grand Lucayan, and Bimini Bay.

This is because casino gaming, regulated by the Lotteries and Gaming Act, is also to be treated as VAT ‘exempt’. In turn, this means that the four hotels will be unable to recover a proportion of their VAT inputs, with the level of recovery determined by how much of their business is non-gaming.

“Hotels that also provide gaming services (also have a casino) and food stores will provide both exempt and taxable supplies, and will only be able to recover a portion of the VAT incurred on their overhead costs,” the KPMG report warned.

“We would suggest that these types of businesses consider proposing to, and agreeing, with the [VAT] Commissioner a special method of apportionment that will give them a fair recovery of VAT on all costs.”

Rupert Roberts, Super Value’s president and owner, told Tribune Business that this issue was being addressed in talks between the Ministry of Finance on one side, and the likes of the Coalition for Responsible Taxation and Retail Grocers Association on the other.

He declined to go into details, as he had been off-island and only just returned on Friday, and was not familiar with latest developments.

Gavin Watchorn, AML Foods’ president and chief executive, also declined to comment when contacted by Tribune Business.

But one food retailer, speaking on condition of anonymity, said: “I can’t see how you can start apportioning [VAT between exempt and taxable]. If you rent, you should be able to claim it all back.”

The KPMG report also noted the difficulties this would cause, pointing to financial services institutions, which will only be able to recover VAT ‘inputs’ on the ‘taxable’ fee-based products and services they provide.

“This will have an impact on banks and financial institutions, including insurance companies, as although they may make taxable supplies, either in respect of fixed-fee services or services provided to non-residents that are zero-rated, most of the costs they incur will be overheads and it will be difficult to attribute them directly to a certain service provided,” KPMG added.

The draft Bill and regulations state that VAT ‘inputs’ cannot be recovered on the sale of ‘exempt’ goods and services.

The regulations, the accounting firm added, required “an apportionment of any input tax that cannot be directly attributable to either exempt or taxable supplies”.

While there was a formula for doing this, KPMG said the regulations allowed the Commissioner to consider a different method “where it is deemed reasonable in a particular case”.

While “the transfer of assets and services as part of a transfer of a going concern”, namely the merger, sale or acquisition of a company, will attract a zero VAT rate, the VAT Commissioner must be informed 14 days prior to a deal’s completion.

Auctioneers, too, must become mandatory VAT registrants and add the 15 per cent levy to the bid/purchase price of any sale.

Charities will treated as VAT ‘exempt’ provided they provide services related directly to their purpose, and distribute more than 50 per cent of funds received. No more than 50 per cent of the funds received can come from one person.

Second hand car dealers are also subjected to special VAT treatment, as they will have to apply the 2/23 VAT fraction to 70 per cent of a vehicle’s selling price to determine the output tax due and payable to the Government.

This applies if the vehicle is valued at under $10,000; the sale attracts the 15 per cent standard rate; and no VAT was incurred when the dealer purchased the car.

Elsewhere, KPMG urged all corporate entities, especially those with multiple companies and subsidiaries, to review their structures “to ensure that inter-company charges do not create a VAT cost. It may be possible to change the structure prior to the implementation of the regulations to prevent this”.

Transfers between related parties may be subject to VAT even if no funds change hands, while the Bill makes no provision for treating a group of companies as one.

The accounting firm also called on all Bahamian businesses to read the VAT legislation and understand it, especially the impact on their firms, and ensure all necessary personnel were trained to implement the new tax.

Apart from reviewing existing contracts, plus accounting systems and IT infrastructure, KPMG added: “Some businesses will not be able to recover all the VAT they incur on purchases, and this will create a cost which will need to be financed.”

And, acknowledging that the July 1, 2014, deadline had created a “short timescale of implementation”, the accounting firm said: “There is a very short window of opportunity in which to highlight issues with the Commissioner prior to the VAT Bill being finalised.”