The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Commonwealth Bank’s president said yesterday it anticipates a short-term spike in delinquencies when Value-Added Tax (VAT) is implemented on January 1, having estimated the previous model would have increased its own annual costs by $4 million.

Ian Jennings said it was difficult to assess what impact the restructured 7.5 per cent VAT model would have on financial services, especially given Prime Minister Perry Christie’s indication that there will be fewer exemptions than previously proposed.

Financial services had been treated as VAT ‘exempt’ under the previous model, which would have meant the banks would suffer an increase in their operating costs by being unable to reclaim/net off their ‘input’ tax payments.

“Certainly being exempt does pose a lot of issues for domestic financial services because there would be VAT inputs that would not be recoverable, and so there would be additional expenses,” Mr Jennings said.

“Under the first regime we estimated an annual increase in expenses of probably $4 million per annum. We have not yet seen the guidelines, so it is difficult to assess what that number will be at this time, but certainly we welcome the delay.

“One of our concerns, and the concern of the private sector as a whole, is we see a lot of commentary about government being ready for VAT, but I’m not sure that they have totally taken into account the lead time that the private sector needs, especially when you are talking about a very complex financial system. In some cases, depending on the regulations, it could be a very easy adjustment. It just depends on what the regulations require VAT to be calculated on.”

Mr Jennings said Bahamians would be significantly impacted by VAT, with a short-term spike in delinquencies expected. “The Government is mandated to be able to balance the books and to be able to extract something to the order of a $200 million net increase out of the economy,” he said.

“It doesn’t really matter how that is done. The general population is going to suffer. We are all going to be challenged. Obviously every individual is going to have to reassess how they use their disposable income, and disposable income is already very low.

“A significant sector of our customers are going to be hurt by this, and we see a short-term spike in delinquencies.”

Mr Jennings added that reducing the VAT rate did not mean that the impact on a business’s bottom line would be any less.

He said Commonwealth Bank, which has in excess of 6,000 shareholders, was looking to improve its operational efficiencies and direct more focus on training and development of its 560 employees.

“We are not going to be significantly readjusting our staffing levels; we are just going to see if we can get more productivity out of our existing staff members,” said Mr Jennings.

Patrick McFall, the bank’s vice-president and chief financial officer, said the bank continues to face external obstacles “that are beyond our control”.

“In 2013, the Government increased Business License fees significantly for banks. The increase for Commonwealth Bank in 2014 was nearly $5 million, and this will be an ongoing charge. The Bank is also concerned about the financial impact of increasing taxation,” he added.

“The challenge with Business Licenses is that you’re taxing above the line, so it creates an inducement to reduce employment as opposed to a corporate tax that would be an incentive to increase employment,” said Mr Jennings.