The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas will “price itself out of the market” if it imposes a Value-Added Tax (VAT) ‘double whammy’ on tour packages sold abroad by travel agents and other wholesalers, a senior hotel executive has warned.

Robert Sands, Baha Mar’s senior vice-president of governmental and external affairs, told Tribune Business that the current proposal requires Bahamian hotels and other tourism operators to levy 15 per cent VAT on the commissions they pay to these overseas agents.

And, in turn, the same wholesalers will have to add VAT to the tour packages they sell to potential visitors to the Bahamas, then remit the funds collected to this nation for transfer to the Government.

This effectively represents VAT ‘double taxation’, hence the Bahamian hotel industry’s call for tour packages sold overseas to be treated as Bahamian exports and thus ‘zero rated’ for tax purposes.

Asked about the cost impact if the VAT proposal remained unchanged, Mr Sands told Tribune Business: “Obviously you’d price yourself out of the market.

‘It inflates the cost to the traveller, and they’d be paying for it offshore and onshore.”

He added: “Nothing is cast in stone at the moment, but we’re bringing this to the Government and electorate’s attention so they don’t put this particular initiative [tour packages] in place.

“There’s a question of price elasticity, and that at a certain value persons will make a decision as to where they will take a vacation, meaning they will not come to the Bahamas.

“They will go to a much more price sensitive destination that also offers similar value.”

With the Bahamas already a high-priced destination in both reality and perception, the Bahamas Hotel and Tourism Association’s (BHTA) main fear is that VAT’s introduction will lead to further cost increases that will undermine the sector’s global competitiveness.

Stuart Bowe, the BHTA’s president, underscored such concerns in a recent column issued to the media, in which he said the industry’s initial estimates were that VAT will increase the cost of a family vacation in the Bahamas by “at least $500”.

“In its current form the VAT tax threatens to affect our competitiveness, business viability and the more than 97,000 direct and indirect Bahamian jobs created by a growing tourism industry,” Mr Bowe said in an editorial piece.

“The Government’s current VAT proposal would have an unintended cost, impacting all of us by slowing the recovery of the tourism industry, shrinking the economy and reducing the amount of the nation’s foreign currency reserves.

“Initial estimates show VAT as proposed raises the cost of a family vacation to The Bahamas by at least $500. Faced with this, potential visitors would opt to go to less expensive destinations, as many already do. We would all suffer the consequences.”

Mr Sands echoed such sentiments in his interview with Tribune Business, warning that “the price competitiveness of our sector should remain a pivotal focus”.

Failing to do so, he added, would impair the Bahamas’ ability “to attract the level of guests we’d like to see in this destination”.

“We’re hopeful the Government, in its wisdom, will consider a smart tax and a number of initiatives in the hotel sector’s plan, and use it for the implementation of a number of tax initiatives that eliminate or greatly reduce VAT,” Mr Sands told Tribune Business.

“Our first choice is no VAT, but a lower VAT will be an acceptable compromise position.”

The hotel industry’s proposal calls for the Government to replace VAT with alternatives such as a shared employer/employee payroll tax plan; legalising and taxing web shop gaming; and better enforcement and collection of existing taxes.

“We believe the Government’s current VAT proposal would be damaging to tourism and I can’t say it any stronger than that,” Mr Sands told Tribune Business. “We must keep Bahamian tourism globally competitive.”

He added that a “tax neutral” outcome resulting from fiscal reform would be the Bahamian hotel and tourism industry’s preferred outcome.

Mr Sands also confirmed to Tribune Business that the hotel/tourism sector, while collaborating with the Coalition for Responsible Taxation on its VAT-related dynamic economic modelling, had hired the Ernst & Young accounting firm to conduct its own studies.

This was disclosed in an e-mail sent to BHTA members, which said: “Concurrent with the Coalition’s Oxford study, BHTA is facilitating two parallel initiatives, thanks in large measure to the support of Baha Mar and Atlantis.

“One is a hotel specific economic modelling study, which will look at options for our sector and address how input costs could be treated so as not to negatively impact our costs and consequently affect our competitiveness.

“The other initiative will focus on broadening public awareness about the importance of our industry and how ‘Smart Tax’ policies can affect our competitiveness, employment, revenue and the overall economy.”

Mr Sands described tourism as the “lifeblood of the economy”, given that it directly generated 50 per cent of gross domestic product (GDP) and 97,000 jobs.

“Quite frankly, if tourism is successful every business is successful,” he added.

Mr Bowe said tourist spending totalled $2.4 billion in the Bahamas last year, with the industry attracting $400 million in foreign direct investment (FDI) annually since 2010.

As for the tour package competitiveness issue, the industry said: “Tour packages that are traded internationally, and subject to local spending by the tourist, should be kept competitively priced.

“International tour packages are, in essence, Bahamian ‘exports’. The Bahamas competes worldwide for tourists, so these packages are highly competitive and price-sensitive.”

It added, in its ‘five point Smart Tax Plan’: “Tourism packages are sold internationally through wholesale channels. Demand for internationally traded products is more elastic than those sold directly to tourists.

“Sales through wholesale channels also involve more costs because commissions must be paid to agents for sales and marketing services they provide. Those services are performed by the agents outside of the Bahamas and should not be subject to VAT.

“Therefore, the current treatment proposed in clause 37 of the draft VAT Bill should not proceed, and the component of hotel and tour package charges that represents overseas agents’ commissions should be zero rated for VAT purposes.”