The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Value-Added Tax (VAT) will not place Bahamian restaurants at a competitive disadvantage against their hotel-based counterparts, a Cabinet Minister asserted yesterday, because they target two different customer bases.

Addressing a Bahamas Association of Compliance Officers (BACO) conference, Michael Halkitis, minister of state for finance, argued that off-property restaurants and eateries were “unlikely” to lose their predominantly Bahamian customer base to resort rivals “merely to save 5 per cent on VAT”.

The Government’s proposed VAT would tax hotel food and beverage sales at 10 per cent, but the levy on their off-property counterparts remains the standard 15 per cent, leading to suggestions that the latter - which are predominantly Bahamian-owned - would become price uncompetitive.

Several observers have suggested this would result in customers switching from off-property to hotel-based eateries, but Mr Halkitis yesterday argued the fact they served “two distinct markets” would prevent this.

Noting that stopover visitors largely ate in the resorts where they were staying, the Minister added that the Bahamian and local customer based relied upon by off-property restaurants were “unlikely to go into a hotel merely to save 5 per cent on VAT”.

Mr Halkitis also said the “base price” for hotel food and beverages tended to be “a little more expensive” than those for off-property restaurants, due to the premium nature of resort offerings.

The obvious implication is that this will counter the 5 per cent ‘VAT tax differential’ advantage enjoyed by hotel food and beverage sales.

While indicating that the Government was keeping an open mind on the issue, and prepared to “listen and make a final determination”, Mr Halkitis said the administration’s overriding concern was to maintain the hotel industry’s international competitiveness.

The sector is the Bahamas’ largest employer and private industry, and the Minister - mindful of the US, Dominican Republic and other global competitors, said: “We have to ensure we don’t put resorts at a price disadvantage to competitors.”

Adding that food and beverage offerings were a key aspect of the hotel product, Mr Halkitis said different VAT rates for resort and off-property restaurants were “not unusual.

“In other jurisdictions they charge a lower rate at hotels,” he said.

Others, though, are less convinced that the impact on Bahamian-owned restaurants outside hotel campuses will be as benign.

In a presentation to the Rotary Clubs of Freeport and Lucaya last week, Kevin Seymour, the former PricewaterhouseCoopers (PwC) accountant and partner, said the lower VAT rate for hotel food and beverage sales was intended to counter the impact the new tax would have on the prices for labour-intensive services.

Pointing to the 10 per cent protectionist VAT rate set to be levied on hotel food and beverage sales, compared to the 15 per cent that outside restaurants and eateries will have to charge their customers, Mr Seymour said: “That’s being played out in Antigua.

“It was only when VAT came in that independent restaurants realized they were on the short end of the stick.”

And he added: “Now I want you to put yourself in the shoes of a cost conscious visitor. Given the choice of dining at one of the hotel restaurants where the VAT will be 10 per cent, and dining at a downtown restaurant such as Cafe Matisse, Van Breugel’s, Twin Brothers at Fish Fry where the VAT will be 15 per cent, where would you dine?”

Mr Halkitis yesterday said VAT’s arrival would also enable the Government to do away with the “arbitrary formula” currently employed for calculating the 10 per cent occupancy (room) tax due form all-inclusive hotels.

Room prices have to be broken out from the rest of the vacation package purchased by all-inclusive travellers, but Mr Halkitis said VAT’s nature meant it would “simply be charged” on the total cost.

As for timeshare, condo hotels and fractional ownership arrangements, Mr Halkitis said these properties will have to pay 10 per cent VAT on the units they rent out - as they do now with the occupancy tax.