The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian health insurers were yesterday said to be “shocked” that the Government chose to impose 7.5 per cent Value-Added Tax (VAT) on their clients’ premiums, with its view that the sector will be better off reclaiming its input taxes currently untested.

Howard Knowles, the Bahamas Insurance Association’s (BIA) chairman, agreed with Tribune Business that the increase in insurance premium costs come July 1 next year would likely cause both individuals and companies to drop their policy coverage.

“I think you’re right in that assessment,” he replied, noting that the Government’s proposed National Health Insurance (NHI) plan was “looming as well”.

Acknowledging that the Government’s position on insurance industry VAT had changed twice now, Mr Knowles said it felt health, and property and casualty insurers, would be better off as ’VAT-able’ than ‘exempt’.

This was because, under the first treatment, the industry will be able to recover all the VAT paid on its inputs, this transferring the burden of paying the tax 100 per cent to Bahamian consumers.

Yet with health insurance costs in the Bahamas already expensive, Mr Knowles said this theory was no good if it resulted in fewer Bahamians and businesses buying health insurance.

Pointing out that the sector was already taxed via the 3 per cent levy on gross premiums, Mr Knowles said it had been assured that it would not be ‘double taxed’ through having VAT applied on top of this.

Yet he acknowledged: ‘We do have concerns. It would be remiss for me to say we don’t.

“The concerns are the same as in the beginning. There’s some price sensitivity in terms of whether clients will be able to afford our products with 7.5 per cent being added.

“If there’s a drop-off in demand for our products, it affects profitability as well. That’s a huge concern.”

Mr Knowles said the BIA had pointed out to the Government that insurance was socially desirable, as it enabled Bahamians to regain their health, rebuild their lives after the loss of a “breadwinner” and recover from catastrophic events such as a hurricane.

Reduced coverage levels across all insurance business classes, he warned, would “place more pressure on the Government”.

“It could have a great potential impact going forward,” Mr Knowles told Tribune Business of the Government’s revised VAT treatment for the industry.

“The Government’s position is that with us being included in VAT we will be able to recover our inputs. If we are exempt, will not be able to recover our electricity and other things we spend VAT on.

“They think we will be better off as an industry if we are covered by VAT. Their position is, from their assessment, we would be better off having the ability to recover VAT,” he added.

“We haven’t determined that. Our position is that if we can’t get people to buy the product in the first place, we have a problem. Don’t forget that insurance is already subject to a tax because we pay the 3 per cent.”

Mr Knowles said the insurance industry was “back to square one almost”, the Government having initially proposed health and property and casualty coverage as taxable under its first 15 per cent version, before reversing course and going the ‘exempt’ route.

Now back to the ‘VAT-able’ position, one senior health insurance executive, speaking on condition of anonymity, described the Government’s policy reversal as “shocking”.

They pointed out that unlike other Caribbean jurisdictions, where the 3 per cent premium tax was paid on the net, Bahamian insurers were paying more by being taxed on the gross.

“We have no problem with being taxed, but we are paying more,” the source said. “It came as a shock to us, and we’re hoping we can re-negotiate with the Government.”

They told Tribune Business that health insurance industry profit margins were “pretty thin”, with the sector “trying to get 3 per cent, and making 2 per cent if we’re lucky”.

“We’ll have to factor that cost into the way we do business,” the source said of 7.5 per cent VAT. “We thought we’d just be taxed on the services.

“As the costs go up the employers say they can’t afford it. The Bahamian public is going to scream, because I’m sure they do not have any more money to afford private health insurance. We can’t have them destroy the private sector. We don’t have the healthiest population.”

Mr Knowles, meanwhile, said the industry was awaiting a meeting that the Government had promised with a ‘consultant’ before finalising its VAT position.