The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian tour and dive operators fear Value-Added Tax (VAT) may put them at a competitive disadvantage against the cruise lines and other foreign rivals, who will escape having to levy it on their customers.

The industries’ concerns over the lack of a VAT ‘level playing field’ were highlighted in a memorandum that the Bahamas Hotel and Tourism Association (BHTA) sent to its members on Friday, which highlighted fears that foreign operators would be able to escape the tax’s reach.

Based on feedback from the Bahamas Tour Operators Association and Bahamas Diving Association, the BHTA note said both sectors wanted to “ensure an even playing field” when VAT at the planned 15 per cent rate is implemented on July 1, 2014.

“There must be parity for all transportation and tour providers and vendors, both local companies and foreign,” the BHTA said in summarising tour and dive operator concerns.

It added: “VAT-registered local tour companies may not be able to compete with cruise line companies selling the same products.

“The Ministry of Finance has indicated it will be the responsibility of the tour provider – for example, Atlantis, Ardastra or Dolphin Encounters - to make sure that VAT is paid on their excursion otherwise they will be liable to the Government for the VAT.”

This means that Bahamas-based tour operators, excursion and attraction providers will be liable to pay the due VAT to the Government out of their own pocket, unless they charge it to their customers and collect it from them.

The concern here is that the cruise lines, as foreign-based organizations, will simply not charge their passengers the 15 per cent VAT on the excursions and tours they run. AS a result, Bahamian companies in same industry, and who have turnovers in excess of $100,000 per annum, will become uncompetitive on price as a result of having to levy the 15 per cent VAT.

Pauline Peters, the Grenadian consultant in the Ministry of Finance’s VAT implementation unit, has told public seminars that the country where the good/service is consumed determines whether VAT is attracted.

If this is so, given that the tours and excursions are taking place in the Bahamas, it strongly suggests the cruise lines should be charging their passengers 15 per cent VAT and passing this on to the Government. Whether the Christie administration is willing and able to enforce this remains to be seen.

The BHTA memorandum, meanwhile, said Bahamian tour operator concerns also extended to rivals of more modest size than the cruise lines. “Spring Break operators who come to the Bahamas each year will not be VAT registered, and will have an unfair advantage over local operators as most transactions occur overseas,” it warned.

And such concerns are not confined to the tour operators. Referring to feedback submitted by the Bahamas Dive Association, the BHTA memorandum said its foreign operator and charter rivals may already “evade the 4 per cent charter fee” currently payable to the Port Department.

These firms would “likely will further disadvantage Bahamas-based operators who would be subject to VAT. Greater effort needed to ensure parity”.

The BHTA note also warned that taxi drivers and small local excursion operators, such as fishing charter boats, would likely be able to sell their services without having to charge VAT because they were under the annual $100,000 turnover threshold.

“The larger, registered tour operators will have to add the VAT, thus making them less competitive,” the BHTA said.

“While the smaller operators claiming annual gross revenue under $100,000 will not be able to claim credits, this may not be a factor depending upon the extent to which they might otherwise offset VAT against payments.”

The tour operators have also urged that bookings and contracts agreed prior to the July 1, 2014, VAT implementation not be subject to the new tax – a position the Government has already agreed to.

“Rates have been communicated and materials published well in advance of implementation,” the BHTA added.

Elsewhere, the BHTA is calling for all restaurants – both hotel-based and non-hotel based – to attract the same 10 per cent VAT rate. “VAT rate for all restaurants should be consistent at 10 per cent,” it argued. “Consistency of rates would eliminate the inequity created between Bahamian restaurants and Hotel restaurants.”

The Government has proposed a 10 per cent VAT rate for hotel food and beverage sales only, in a bid to protect the tourism industry’s competitiveness, although it has indicated it is open to equality-related discussions on the issue.

The hotel and restaurant industry positions, though, illustrate just how many questions relating to VAT’s implementation, mechanics and operation remain unanswered. They again indicate the ‘information vacuum’ that has been created by the Government’s failure to-date to release the necessary legislation, regulations and Tariff Schedule, with the implementation deadline now less than eight months away.

Also portraying the uncertainty that is gripping the private sector, the BHTA memorandum questioned how VAT would be applied to already heavily-taxed alcohol products; and whether it would be levied on interest payments and capital leases.

The document added that all-inclusive properties needed clarity on how VAT would be applied to the food and beverage portion of the guest rate, and urged that the tax not be applied to non-restaurant gratuities and fees such as energy surcharges.

As for items purchased from hotel gift shops and company stores, the BHTA said: “Items purchased from these stores by foreigners intended for exportation should be VAT free.”

It also urged that VAT not be applied to casino winnings and complimentary rooms/incidental charges, and questioned whether the tax would be attracted to areas such as golf and water park activities.

“Will VAT be charged to local companies that pay for services ‘overseas’?” the BHTA memorandum asked.

When it came to Bay Street/downtown Nassau and duty-free retailing, the BHTA memorandum said most duty-free items were constrained by fixed manufacturer prices, which left “little room for margins to be competitive”.

Based on from the Duty Shopping Free Committee convened by the Downtown Nassau Partnership (DNP), the BHTA said the minimal tariffs applied to products sold duty-free at retail needed to be maintained “at a minimum to ensure competitiveness”.

The BHTA, meanwhile, said it had reiterated its concerns that the July 1, 2014, implementation deadline was too aggressive in a recent letter sent to the Ministry of Finance’s financial secretary, John Rolle.

“Earlier this year, when Government representatives indicated that draft VAT legislation would be available for public review and comment by June, BHTA raised concerns about adequate time for the public and private sectors to prepare for implementation,” the memorandum stated, not bothering to point out that we are now in November and still no legislation.

The BHTA said it was “particularly concerned” about VAT’s impact on small Family Island hotels, which may lack the resources and expertise to successfully implement the tax.

“While there have been some indications that the Government may consider a delay, businesses nevertheless should be preparing for the change,” the BHTA said of the implementation deadline.

“Once the legislation is adopted, a massive training effort must be undertaken. Businesses must be prepared for the transition, particularly on matters regarding inventory control, accounting, budgeting, new pricing formulas, filing procedures and calculating credit applications, software applications, and other technological considerations.

“There is much to do in a short period of time. We are particularly concerned about the readiness of Family Island and small businesses, which are above the anticipated $100,000 per annum sales threshold. They have limited resources and access to affordable expertise. BHTA and the [Chamber] Coalition have recommended special treatment for the Family Islands.

“As more details become known with the release of draft legislation and support information, it is incumbent upon the business community to stay informed, assess the potential impact on their business, and prepare for implementation. Your readiness could make a huge financial difference on operations, particularly as you prepare budgets and manage inventory, adjust pricing, and calculate credits against VAT.”

The BHTA said Michael Halkitis, minister of state for finance, had indicated the release of the VAT legislation would occur “some time this month”.