The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Major resort financiers are “sceptical” that Value-Added Tax (VAT) can be implemented in nations such as the Bahamas “without deterring inward investment”, a top accounting firm warned yesterday.

KPMG’s annual Caribbean region hotel financing survey found that a majority - 56 per cent - of private lenders did not believe a VAT could be implemented without negatively impacting foreign direct investment (FDI), leading one of its Bahamian accountants to warn there were “some lessons” for this nation to heed.

Charlene Lewis-Small, a KPMG (Bahamas) associate director, and member of its Caribbean Travel, Leisure and Tourism practice, told Tribune Business that governments had to avoid actions that deterred tourists and investment, and further increased a destination’s costs.

With only 11 per cent of lenders expressing confidence in the ability of Caribbean governments to implement VAT without negatively affecting inward investment, Ms Lewis-Small said: “The resounding consensus was there wasn’t a tremendous amount of confidence in the way VAT was being implemented.

“The consensus is that governments shouldn’t be doing things that further increase the costs of a destination, that drive away tourists, drive away developers, so there are some lessons there for places like the Bahamas to be aware of.”

Ms Lewis-Small added that these ‘lessons’ involved the Bahamas “getting out there” and learning from countries that had implemented VAT before it - those who had done so successfully, and those who had either abandoned their efforts or seen the tax perform poorly.

The KPMG survey findings provide a new twist to the Bahamas’ own VAT debate, with the Government seeking to implement the new tax - the centrepiece of revenue reform efforts - by July 1, 2014.

Whether it will give the Christie administration pause for thought remains to be seen, but the survey highlights the potentially negative effects VAT may have on the Bahamas’ major industry and the need to get its implementation right first time.

This was reinforced by comments made by major resort lenders, which were quoted in the KPMG survey.

They included: “Consumers have a choice so governments need to be careful how much additional taxes they impose.”

And: “Why would we conclude that a VAT structure will be the exception and be well executed?”

On a brighter note, Ms Lewis-Small said financiers remained relatively bullish on the Bahamas, and its prospects for resort development and tourism growth.

“For those that actually cited specific places, we’re still of interest to lenders,” she told Tribune Business.

“Several of them actually cited us as somewhere in the top three places they would like to have in their portfolios.

“We have a lot of competition in the region and beyond, but for the time being we are at least looked upon with some promise by the lenders.”

When it came to resort project financing, Ms Lewis-Small said trends were little changed from those that had emerged over the past four to five years, with lenders looking for developments with “strong fundamentals” - typically those with solid cash and equity positions.

Condo-hotels and other projects that, pre-2008, had relied on pre-sales to generate financing were unlikely to “bounce back any time soon”, she added.

Financiers were also returning to projects that had stalled during the ‘Credit Crunch’ and global recession, assessing “what can be done to fix them and get them up and running and on their way”.

“Lenders are at the point where they are trying to exit some of these projects as well,” Ms Lewis-Small told Tribune Business.

“We have the Ocean Place receivership, for example, bit across the region we are seeing more formal steps to fix or exit projects.”

But, on the positive side, the KPMG’s confidence indicators among Caribbean lenders rose for the fourth successive year, hitting their highest levels since 2008.

“The general theme amongst lenders is, once again, one of conservatism,” the report said.

“The consensus appears to be that the industry is in largely the same position as it was last year, and that it will be at least two-three years before any meaningful growth in tourism returns to the Caribbean.

“A similar time horizon is anticipated before we can expect to see a return to strong sales of real estate, timeshare and fractional units and condominiums.”

But the survey added: “On a more optimistic note, our annual Caribbean Financier Confidence Barometer, which measures the level of confidence of financiers for the next 12 months, is at its highest level since 2008, representing the fourth year in a row that confidence has grown.

“It is clear, however, that lenders are still very cautious and a great deal of uncertainty remains. When asked to indicate what best describes their outlook for the next 12 months from a variety of options ranging from ‘smooth sailing’ to ‘perfect storm’, most lenders settled for the ‘bit choppy’ option with a possibility of ‘rough seas’.”