The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian hotel industry wants a 10 per cent Value-Added Tax (VAT) rate to be applied to it “across the board”, Tribune Business was told yesterday, with the sector working “aggressively” to ensure tax reform does not undermine its competitiveness.

Robert Sands, Baha Mar’s senior vice-president of external and government affairs, said the industry wanted its ‘special’ 10 per cent rate to be extended beyond rooms/accommodation and food and beverage sales.

He also disclosed hotel industry concerns that VAT’s implementation would spark growth of the informal economy, and that cash flows would be negatively impacted by the 21-day deadline to remit taxes collected to the Government.

Acknowledging that “nothing is cast in stone” on VAT, Mr Sands said the four hotels that also offer casino gaming “have been urging, and are urging” the Government to develop a special mechanism that would allow them ‘fair cost recovery’ of their input taxes.

While the Government is proposing to levy VAT on the hotel industry at a lower 10 per cent rate, in a bid to protect its cost competitiveness, Mr Sands told Tribune Business that “the jury is still out on the rates”.

He explained that this included both the 10 per cent figure itself “and what all that includes”.

The Government has said the 10 per cent VAT rate would replace the existing 10 per cent room/occupancy tax, thus ensuring tax reform’s effects would be revenue neutral.

Yet Mr Sands said the Bahamas’ largest private sector employer wanted the 10 per cent rate to broadened beyond rooms and food and beverage to encompass all aspects of the hotel business that were not ‘exempt’ or ‘zero rated’.

“The Government has said it would be cost neutral because we pay 10 per cent room tax now,” he told this newspaper. “But would all elements in the hotel sector be to 10 per cent.

“What we’re looking for is that 10 per cent to be across the board, rather than 10 per cent on some items and 15 per cent on others.

“The Bill, as currently written, puts that 10 per cent apportionment principally on rooms, accommodation at the moment, and possibly food and beverage. That’s still to be determined.”

Mr Sands added that the hotel industry’s VAT concerns covered “multiple areas”.

“We also have to be concerned that once some of these things are implemented, that the informal economy doesn’t grow,” he said. “That would certainly be counter-productive.”

The Baha Mar executive added that the “timing of payment and remittances is very important”, given the Bill’s stipulation that all due funds collected by VAT registrants must be sent to the Government within 21 days of the previous month’s end.

“This is cash for a lot of businesses,” Mr Sands emphasised.

Despite the hotel industry’s long list of concerns, Mr Sands was quick to point out that the VAT Bill and accompanying regulations were an “evolving process” and “nothing is cast in stone at this point in time”.

“We don’t want to cry wolf just yet,” he told Tribune Business. “Obviously, the jury is still out on electricity and some of the inputed services. We still don’t know what the true impact of that will be.”

Tribune Business reported earlier this week how the KPMG accounting firm, in its analysis of the draft VAT Bill and regulations, had urged Atlantis and Baha Mar to swiftly approach the Government and work out “a fair recovery of Value-Added Tax costs” due to their split tax treatment.

This is because the four hotels currently offering casino gaming - Atlantis, Baha Mar, the Grand Lucayan, and Bimini Bay - will sell both ‘exempt’ and taxable products and services.

Casino gaming, regulated by the Lotteries and Gaming Act, is to be treated as VAT ‘exempt’, meaning the tax paid on inputs associated with this niche cannot be recovered.

What this means is 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.

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.

Disclosing that the Bahamian hotel industry had already been aware of this issue, Mr Sands said Baha Mar and the other casino hotels “have been urging, and are urging, the Government to work out a special method of apportionment to give us fair recovery of our tax costs based on split tax treatment”.

Noting that this issue had been raised in multiple meetings with the Government, he added: “We have assiduously and aggressively addressed all of these issues with the Government to ensure we are not disadvantaged in this process.”

Mr Sands said he hoped the Government had taken on board the multiple recommendations made to it by both the hotel industry and the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) Tax Coalition.

“We’re working towards a solution,” he said.