The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian marina operators fear Value-Added Tax (VAT) will “stunt” growth of the vital yacht charter business, and are warning they will “be put out of the market” if the new tax is levied on their fuel sales.

Brooks Russell, the 194-slip Palm Cay marina’s harbourmaster, told Tribune Business that VAT would have “a drastic effect” on the Bahamas’ lucrative yacht/boat charter market, especially if it was applied on top of existing taxes and fees.

Joining calls for marinas to be ‘exempt’ from paying VAT on the fuel they supply to visiting boaters, Mr Russell urged the Government to avoid increasing the industry’s taxation burden to the point where it became uncompetitive versus Florida and rival Caribbean nations.

“If we’re not careful with what taxes we put in place, we’re really going to stunt the growth of this industry across the board, and we are not going to be as competitive as the rest of the Caribbean will be,” Mr Russell told Tribune Business.

“We need to make the right decision to grow this industry, not do what makes it stagnant. I’m afraid, certainly if VAT is implemented on fuel and other key elements, it will stunt our growth.”

Tribune Business has obtained a comprehensive list of marina industry concerns regarding VAT and its potentially negative consequences for a sector that generated $46 million for the Bahamian economy in 2012 boater revenues.

The details, contained in a note sent by the Bahamas Hotel and Tourist Association (BHTA) to its members on Friday, detail VAT’s impact on fuel costs and the charter market as particular concerns.

“Fuel is already subject to high tax, and VAT should not be applicable, or existing tax should be lowered in consideration of a VAT,” the BHTA said of input received from the Marina Operators of the Bahamas.

Many marinas already struggle to make profits and decent margins on their fuel sales, due to a combination of price controls, taxes and fees incurred for processing credit card payments.

Mr Russell estimated that the Government currently earned $0.42 per gallon on fuel sales to boaters, and told Tribune Business that marinas generally “only make” $0.35 per gallon.

“Fuel is our biggest competitor,” he explained. “Fuel has to be exempt from the implementation of VAT. If this tax is added on to the fuel, that puts us out of the market. It’s going to be really hard. Fuel has to be exempt for the marina industry.

“Clients coming from the US already pay high prices for the fuel, the cruising permit and the dockage slip. The amount of tax a boater coming to visit the Bahamas is going to have to pay is going to deter some of the boating industry in Florida from coming to the Bahamas.”

Mr Russell said he received a clear message from the boating community when Palm Cay exhibited at the recent Fort Lauderdale International Boat Show.

“A lot of people told me they don’t have to come to the Bahamas,” he explained. “They can go to Key West and places like that, and experience a lot of what they get in the Bahamas by paying a lot less.”

The BHTA note, meanwhile, said Bahamian marina operators wanted slip/dock rentals to either be VAT ‘exempt’ or subject to the same, lower 10 per cent that hotels will enjoy on their rooms.

“Slip rentals are similar to hotel room rentals; people are renting space,” the BHTA said. “Similar to the recognition being given to hotels because of competitive pricing concerns, slip rentals should not be subject to VAT or be assessed at a rate lower than 15 per cent.”

The Marina Operators of the Bahamas also wants the same VAT treatment applied to long-term slip rentals – either ‘exempt’ or the lower 10 per cent rate – on the grounds that many such slips “are tied to part-time residents”.

“If they’re going to tax slips, we have to be competitive, so the least amount of tax paid on a slip, short and long-term, is vital to the health and growth of the marina industry,” Mr Russell told Tribune Business.

“Some of these things have to be heavily analysed, researched and understood before [VAT] implementation, otherwise you’re going to stunt the growth of the marina industry. For all marinas in the Bahamas, we have to do what’s right to make this industry grow.

“Although I understand what the Government is trying to accomplish, we have to be very careful how much VAT is implemented on a particular item.”

The BHTA said other marina industry concerns included whether VAT would be added to electricity and water purchases by boaters, and whether they would receive ‘credit’s for the tax paid on inputs such as water, insurance, amortization of construction and equipment, and marketing and other services.

Then came the concerns over the charter market. “Will there be a VAT on top of the existing 4 per cent Charter fee?” the BHTA noted of marina operator concerns.

“Will it also be assessed on the 35 per cent that is charged for food, fuel, dockage? Will the current Bahamas Charter License that each yacht is required to obtain to charter in the Bahamas remain the same, or will it now be assessed differently? What credits will be permissible if a yacht is on charter?”

Mr Russell explained: “All yacht charters that come into the Bahamas that receive a foreign charter licence are supposed to pay a 4 per cent tax on the charter fee to the Port Department on every charter they provide.

“If you add VAT to that, you’re not going to grow the industry, as yacht charters in the Bahamas are going to become more expensive because brokers are going to have to up their rates because of the amount of tax.”

Describing charter operations as “vital to the health and growth of this [marina] industry”, Mr Russell said the ’35 per cent’ in the BHTA note referred to the “approved provisioning allowance yachts have to pay”.

Using the example of a client who chartered a yacht for one week at the rate of $10,000, the Palm Cay harbourmaster said the 35 per cent was applied “on top of that” as an approved provisioning allowance for food, fuel and dockage.

“My fear as a marina operator is that, in terms of the charter sector, it is a key element to growth in the industry,” Mr Russell told Tribune Business. “It’s going to have a drastic effect on the charter industry in the Bahamas, as VAT may be charged on all the percentage items on a charter.

“That adds to tax on fuel, dockage, tax on the charter rate. It’s tough. It’s going to have an affect on all this if we do not speak out and express ourselves about it.”