The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will likely structure its 15 per cent Value-Added Tax (VAT) to protect low income households and minimal energy users from its inclusion on electricity bills, a top Ministry of Finance official said yesterday.

John Rolle, the financial secretary, told Tribune Business that countries with VAT regimes normally set an energy consumption threshold below which VAT was not levied on bills.

Effectively confirming that VAT would be levied on Bahamas Electricity Corporation (BEC) bills, Mr Rolle acknowledged that the Government would “have to take a view there” when it came to protecting low income households.

Such caution is understandable, especially given that some 7,000-8,000 Bahamian businesses and households have already seen their power supply cut-off by BEC.

While VAT’s arrival is unlikely to lead to a matching 15 per cent increase in consumers’ BEC bills, due to the offsetting impact of reduced Customs duties/VAT credits on the Corporation’s inputs, any further rise could push some over the edge when it comes to ability to pay.

“Typically, you can structure it so the lower income households and those not consuming a lot of energy may get an initial level of consumption that does not attract the tax,” Mr Rolle told Tribune Business.

“This is part of our technical thinking and proposal, and is the way VAT has been introduced in many countries.

“What happens is that those households that do not consume large quantities of electricity, which should cover most if not all of the lower income households, they would see an exemption from VAT for some or all the electricity consumed.”

Pointing out that key input costs, such as fuel, would land in the Bahamas cheaper as a result of lower Customs duties, Mr Rolle said numerous “base costs” for the services sector would also be reduced.

As a result, services companies should not be marking-up their charges to consumers by 15 per cent, the Financial Secretary said, “unless in extreme cases”.

Mr Rolle added: “It is grossly inaccurate to say that services businesses will have little to claim in input tax credits.

“Input tax credits will be available for all registrants who are authorised to charge VAT. Examples of common charges where this would apply are against VAT-paid electricity, telephone, rent, office supplies and materials, as well as professional services that are used in the context of the business operations.”

Emphasising that VAT would “not take the place of what we’re paying 100 per cent in duties now”, Mr Rolle said public consultations would be critical in determining how the local restaurant, and food and beverage industry, would be treated.

Concerns had previously been expressed to Tribune Business that Bahamian-owned eateries and restaurants would be placed at a competitive disadvantage against rivals based in hotels, as the latter are set to attract a 10 per cent VAT rate compared to the 15 per cent rate for everyone else.

As a result, Bahamian-owned restaurants will be placed at a price disadvantage, and Mr Rolle said the Government would “have to draw on the public dialogue and discussion to see how this debate plays out and where it settles”.

While agreeing that hotel-based food and beverage sales are currently set to attract the lower 10 per cent VAT rate, the Financial Secretary also disclosed that attraction and entertainment amenities in Bahamian resorts would be subject to the 15 per cent rate. Room sales would also attract 10 per cent VAT.