The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian-owned airlines had “reason to celebrate” yesterday after the Government reversed plans to charge its passengers 15 per cent Value-Added Tax (VAT), something one operator said would have increased air fare costs by 17-20 per cent.

Anthony K. Hamilton, president of the Bahamas Association of Air Transport Operators, told Tribune Business that charging VAT on passenger tickets would have merely exacerbated a situation where airlines “oftentimes have to put hands in our pockets” to help pay the return air fare for Family Islanders leaving Nassau.

“That sounds excellent,” he replied, when told by Tribune Business that Michael Halkitis, minister of state for finance, had revealed on Monday night that all forms of domestic transportation would be treated as VAT ‘exempt’.

The Government had initially proposed that only water and land-based domestic transportation would be VAT ‘exempt’, provoking an immediate outcry from Bahamian-owned airlines who operate the Family Island routes.

Apart from fears over a potentially crippling loss of business, and loss of competitiveness, domestic carriers also expressed concern that VAT-induced ticket price increases would hit Family Island resorts and the wider tourism industry.

The thinking here was that ticket price increases would reduce the incentive for visitors to travel beyond Nassau.

“That’s excellent motivation and the timing is absolutely perfect,” Mr Hamilton said of the Government’s decision. “It brings relief, and I suppose it opens the doors for other things to be discussed in terms of improving the local aviation industry and its business performance.”

Mr Hamilton suggested that the Government’s ‘about turn’ on domestic aviation VAT could lead to further talks “to address other outstanding matters in the industry”.

He identified the vast array of fees levied on the industry, by the likes of the Nassau Airport Development Company (NAD) and Civil Aviation Department, as well as the central government, as the prime issue worthy of further examination.

And, in particular, Mr Hamilton expressed hope that the Government’s VAT reversal would lead to a change in approach where it, and the appropriate authorities, consulted the sector first before any reforms were implemented.

Calling for future changes to be executed “in a proper professional manner”, Mr Hamilton told Tribune Business: “It turns out to be a regretful and regressive kind of experience outside of having proper consultation.”

Asked about the likely consequences if the Government had gone through with its initial proposal to make domestic aviation ‘VAT-able’, Mr Hamilton said: “Many of the operators can tell you that oftentimes they have to put their hands in their pockets to help people travelling back to the Family Islands.

“People come to Nassau and haven’t got the money to pay the return fees, and I’ve had the experience, like all domestic operators, where I’ve had to put my hand in my pocket to assist people going back to the Family Islands.

“Definitely any hike in fees, in terms of passing that [VAT} on to the domestic travelling public, would have been adverse.”

Mr Hamilton expressed hope that the VAT decision would “go in tandem”, and “set the stage”, for the Government to make a favourable decision over the new Customs fees introduced in the 2013-2014 Budget - something the sector is still waiting on.

Captain Randy Butler, Sky Bahamas’ chief executive, told Tribune Business that the Government’s move was “reason to celebrate”.

“That’s exciting and makes sense,” he added. “It’s a sensible thing the Government has done, and we appreciate that and applaud them on that. It shouldn’t have taken this long for them to figure it out.”

Echoing Mr Hamilton in expressing hope that the Government would now take a ‘bigger picture’ look at the aviation industry’s other issues, Captain Butler estimated that adding VAT would have caused ticket prices to increase 17-20 per cent.

“It would have increased our costs a little bit by having to pay that tax,” he added. “I hope the Government will look at other fees, particularly the terminal fee that NAD charges, which is based on seats per plane as opposed to passengers per plane.

“I’m not opposed to user fees, but they have to be based on reasonable benchmarks. I hope the Government will look at the industry as a whole to see how it can help build domestic tourism.”

Apart from pricing out, and disincentivising, Bahamians from travelling to the Family Islands, Captain Butler said VAT-induced ticket price rises would have been deemed “unreasonable” by tourists.

They would have found it “cheaper to travel to the Bahamas, than travel within the Bahamas”.

John Rolle, the Ministry of Finance’s financial secretary, indicated in a previous interview with Tribune Business that most businesses in the ground transportation sector - taxis and jitneys - were likely to fall under the mandatory registration threshold of under $100,000 annual turnover.

And he suggested that the ‘exemption’ for sea transportation was intended to assist the hard-pressed mail boat operators, preserving their routes to the Family Islands.

Captain Butler, too, suggested that the ‘VAT on domestic aviation’ u-turn would facilitate further talks with the Government on the 2013-2014 Budget taxes, and the fact the proposed solution would still leave his airline, and the likes of British Airways, exposed to them.

“This is a good step in the right direction, and from this to look at all the agencies’ fees,” Captain Butler said.

“We believe the Government should have its taxes, and we will help it get them, but in some cases the industry is being triple taxed, and so it’s time for them to look at the industry as a whole.”