The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Value-Added Tax (VAT) “could have a devastating effect” on Freeport’s economy by causing a contraction in consumer spending, an Opposition MP warned yesterday.

K P Turnquest, who is also a former Grand Bahama Chamber of Commerce president, told Tribune Business that the main concern for Freeport businesses was how VAT would be implemented given the seeming constraints of the Hawksbill Creek Agreement.

Suggesting that the resulting uncertainty had left Grand Bahama Port Authority (GBPA) licensees in “wait and see mode”, Mr Turnquest said his “understanding” was that ‘bonded goods sales’ would be VAT exempt.

These transactions, where goods are sold by one GBPA licensee to another, for use in the latter’s business, are already exempt from Customs duty, and will likely attract a 0 per cent VAT rate come July 1, 2014.

However, goods brought in duty-free by GBPA licensees, and which are subsequently sold to individuals or households, currently attract Customs duty on a post-paid basis.

It is these sales which will attract a 15 per cent VAT tax, something confirmed to Tribune Business yesterday by a high-ranking Ministry of Finance official.

Backing Mr Turnquest’s description of how VAT would be implemented in Freeport, John Rolle, the financial secretary, said: “Households and individuals would definitely pay the VAT. That is the way we see it being implemented in practice.

“We’re developing proposals in terms of how that will be administered.”

Acknowledging the “administrative peculiarities” of the Port area, Mr Rolle said GBPA licensees would “distinguish in the sales between what they sell to licensees, and what they sell to non-licensees” - much as they do now under the ‘bonded goods’ system.

Indeed, Mr Rolle said Freeport businesses “may even have some pointers” for their Nassau counterparts on how to adjust to, and administer, VAT collection and reporting, due to the system they have long operated.

“They report to Customs on a monthly basis after the sales are registered, and make distinctions between licensees and non-licensees,” the Financial Secretary said.

He added, though, that businesses such as Polymers International and Pharmachem, which form the core of Freeport’s export economy, would be ‘zero-rated’ under a VAT.

This would mean that, while VAT is not levied on their exports, they would still be able to claim ‘credits’ for the taxes paid on their inputs.

Transhipment/logistics providers, such as VTrade Company, will also enjoy ‘zero-rated’ status.

“If you are in the transhipment business, that’s not going to impact VAT, because the point of service where the end product is delivered is outside the Bahamas,” Mr Rolle said.

Still, Mr Turnquest argued that it was Freeport’s consumers who would feel the brunt of VAT following its planned January 1, 2014, implementation.

“The main issue here in Freeport is how this is going to apply to us given our status under the Hawksbill Creek Agreement,” he told Tribune Business.

“At this point, the Government seems to be a bit unsure of how it’s going to work. They appear to be of the view that it’s applicable, but the provisions of the Hawksbill Creek Agreement provide that there be no taxes per se.”

And Mr Turnquest added: “This is a very tenuous time for us here in Grand Bahama. We continue to lose business as a result of the high cost of operations, and when you add on an additional layer of cost [VAT], which will inevitably cause a contraction in consumer spending, it could have a devastating effect.”

The MP warned that the addition of VAT to household bills for both goods and services could spur Grand Bahamians to increasingly head to Florida for shopping, undermining the competitiveness of local businesses.

And, while acknowledging that the promised reduction in Customs duties could offset VAT’s impact, Mr Turnquest said the new tax was “inevitably going to cause cost of living increases throughout the Bahamas”.