The Tribune

By NATARIO McKENZIE

Tribune Business reporter

nmckenzie@tribunemedia.net

Value-Added Tax (VAT) should not cause any “major destabilization” to Bahamian health care costs, a senior Ministry of Finance adviser said yesterday, while acknowledging that providers would ultimately have to find ways to recoup their ‘input’ tax payments.

Ishmael Lightbourne, who was a presenter at the Bahamas Small & Medium Business Symposium 2020, acknowledged that while health services are proposed as VAT ‘exempt,’ providers would still have to pay Customs duty and VAT on their imported equipment and other inputs.

“There’s really no change in terms of what is happening with an unregistered business, or business in the medical field and the dental field,” he said.

“Their equipment will attract Customs duties and VAT. They will have to find ways to recover and recoup their costs, both in terms of their service cost as well as all the equipment that they bring in.

“No one aims to try and recover their equipment cost over night. You gradually try and build some element of that into your pricing so that, over time, your operations pay for your equipment and pay for all your capital expenditure. It’s only the registered businesses who will be able to offset the VAT they pay on their capital expenditure against the VAT they have collected, claim that back and pay the difference to the Governmen.”

Mr Lightbourne continued: “If the the price of the equipment that they are brining in now will cost $100,000, they pay 45 per cent on that. When VAT comes, that goes down to 30 per cent,  but they still have to pay 15 per cent VAT.

“The total cost that they pay is not going to be any different from what they paid under the Customs duty regime. They’re still going to have to find the same mechanism to recoup their cost. The cost is not going to go up. They don’t get the benefit of this offset from the VAT they collect on the VAT they pay, but they don’t have it now under Customs duties.”

He added:  “I don’t see any reason for a major destabilisation in the cost ratio. The cost should not go up under VAT.”

Doctors Hospital’s president, Barry Rassin, in a recent interview with Tribune Business called for healthcare to be ‘zero-rated’ rather than ‘exempt’ under the proposed VAT. 

With zero-rated goods or services, one can generally reclaim VAT on any purchases that relate to those sales. For exempt sectors, however, there is no mechanism for reclaiming VAT on purchases, with businesses ultimately left to recoup their costs through pricing.

  Mr Lightbourne suggested that there was no real advantage for Bahamians shopping abroad once the 15 per cent VAT is implemented, stating that the tax will operate like a sales tax in the domestic economy, and a Customs duty at the border.

“You will pay VAT at the first point of entry. We make that point over and over again,” he said. “There is no real big advantage.

“Now under Customs duties people do take advantage of going abroad to shop because if they can buy it at a certain price, and at least avoid mark-ups or something that takes place in the shop.

“I don’t know that VAT  is necessarily  going to enhance or increase that process. Some people will look at it from that perspective. I would hope not. At the end of the day, we want Bahamian businesses to be able to sustain themselves. At the end of the day we want businesses to be reasonable in terms of not pricing their commodities outside of the range which causes people to look to shop elsewhere.

“That also becomes a part of the equation,” Mr Lightbourne added. “It’s not just a matter of saying buy Bahamian and shop in the Bahamas,; there has to be responsible pricing and it opens the room for competition

“The whole arena of competition is going to go through the roof, I think, because people will look at this and see how they can improve their returns by taking advantage of these types of situations.

“Businesses also have an important role to play. The Customs duty element is  compounded with the pricing that goes forward right now in our existing system, which is even bigger, because under VAT you’re not allowed to put VAT in your pricing because you’re going to reclaim the VAT. I don’t see why it should encourage a greater degree of shopping abroad than it does right now.”