The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Major importers were yesterday said to be facing “major” uncertainty over how Customs will calculate duty rates post-January 1, a factor that is preventing them from making essential computer system adjustments.

Gowon Bowe, the Coalition for Taxation Reform’s chairman, confirmed to Tribune Business that major retailers and wholesalers were still unsure what Customs would base duty rate calculations.

While it has traditionally used the CIF (Cost, Insurance and Freight) method for calculating corresponding import payments, the arrival of Value-Added Tax (VAT) has seen it move to the Freight on Board (FOB) method for certain industries in a bid to lighten their tax burden come the New Year.

However, Mr Bowe said it was still unclear for many whether FOB would be calculated on the movement of goods from the port, inland and shipping transportation, and even if it would replace the CIF method at all.

“That’s one of the big issues,” he told Tribune Business. “A lot of businesses are on a weekly or bi-weekly ordering programme, and not having clarity from Customs is a major issue for those importers.”

The Tax Coalition co-chair said major retailers and wholesalers, car dealerships and the grocery industry were among the sectors affected most by this.

He added that while the issue may not necessarily be an expensive one for Bahamian businesses, it involved “very significant system” changes that would be both time consuming and vital for the Government’s tax maximisation.

Rupert Roberts, Super Value’s owner and president, also flagged the issue to Tribune Business last week, warning that retailers would be unable to properly “align computer systems” unless the issue was clarified.

“If we do not get that settled, we will not know what duty to pay,” Mr Roberts said, adding that the impact would be felt all along the pricing change.

Whether the Government will switch from the “old method of duty entry at landed cost (CIF)” is among a “laundry list” of VAT-related matters that remain to be clarified with just 22 days - three weeks - left to the new tax regime’s implementation.

“It’s amazing how much of a laundry list there has been,” the Tax Coalition chairman told this newspaper.

Mr Bowe said the ongoing ‘inclusive’ versus ‘exclusive’ VAT pricing debate remained as one of the outstanding “big ticket" items.

He told Tribune Business that New Zealand, which the Bahamas is using as something of a ‘model’ for its own VAT system and implementation, had given retailers the option of employing both pricing methods.

This, though, was allowed on the condition that whatever method was employed -’inclusive’ pricing or on the receipt/register and ticket tape - the consumer had to know VAT was incorporated into their bill.

Elsewhere, Mr Bowe said the Government felt the ‘resident’ versus ‘non-resident’ VAT treatment, when it came to financial services, had been dealt with in the regulations.

The Central Bank of the Bahamas had developed “a crib sheet” on the issue, the overriding principle being that if financial services were ‘not consumed’ locally, they would be treated as ‘zero-rated’ or ‘exempt’ for VAT purposes.

“It’s still not crystal clear,” Mr Bowe told Tribune Business on financial services, adding that homeowner association fees and VAT’s potential impact on the insurance industry during the 2015 first half also remained unresolved.

“A lot of people in the insurance industry expressed significant concern, as there’s not a lot of measures to say how they’re going to be dealt with,” he added.

The insurance sector, especially the property and casualty and health segments, are worried that because they will be treated as ‘exempt’ for the January-June 2015 period, they will be unable to recover the 7.5 per cent levy paid on their input costs.

This feeds into potential cost increases, which will likely be passed on to consumers via higher premiums and fees, prior to these categories becoming ‘VAT-able’ on July 1, 2015.

“A lot of insurance companies are concerned as this is a cost unforeseen, and they have to account for that,” Mr Bowe said. “A big area of concern is how insurance will be treated from January to June.”

He added that the Government had now appointed the long-awaited insurance industry consultant, which would advise both it and the sector on how to cope with VAT.