The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The looming Value-Added Tax (VAT) implementation was yesterday said to be getting “scary” for commercial banks, who are running out of time to make critical system adjustments.

Ian Jennings, Commonwealth Bank’s president, expressed particular concerns about the implications for credit card services, explaining that software providers/processors were “mandated to close down any changes” required by next month.

With so many unanswered VAT questions outstanding, Mr Jennings said it was currently impossible to communicate all the necessary code adjustments to the card services providers - leaving Bahamian commercial banks in danger of missing the “change freeze”.

“The scary thing now is there are less than 60 days” before VAT’s implementation, Mr Jennings told Tribune Business.

While Commonwealth Bank had estimated that the initial 15 per cent model would cost it $3-$4 million annually, its president said precise figures for the restructured VAT were impossible to estimate due to the ongoing uncertainty.

“The wise phraseology is that the devil’s in the details, and the Clearing Banks Association has been meeting with the Ministry [of Finance] to try and establish those details,” Mr Jennings told Tribune Business.

The VAT treatment of late fees and loan origination fees are among the outstanding issues, with how it will apply to “smaller and more obscure fees” also raising concern.

Disclosure requirements, in terms of what information commercial banks may have to provide the Government in relation to VAT registrant clients, is another area where the commercial banks are seeking greater clarity.

“The challenge is that we’ve got to get all our questions answered before we go to the systems people and software people, and say: ‘We’ve got to charge this amount on this fee’, and ‘charge this amount on this transaction’,” Mr Jennings told Tribune Business.

“We’re only now getting into the position where we understand the regulations, and going to the software people to see what changes. Some issues are pending, and it’s costing people time to research and they’re being distracted from projects they’re working on.

“Adapting to regulatory changes is certainly a more significant part of banking than it was 15-20 years ago.”

Mr Jennings said the Ministry of Finance was also reviewing the VAT structure in response to commercial bank concerns they would not be able to recover much of their VAT ‘inputs’.

With savings and loan products treated as VAT ‘exempt’, commercial banks will only be able to recover the tax paid on their inputs in proportion to the VAT-able part of their business - fees and other charges.

This means the sector will have to absorb, or eat, much of its VAT ‘input’ payments - a cost that is likely to be passed on ultimately to Bahamian consumers.

“We’re still having some discussions,” Mr Jennings revealed. “The Ministry of Finance have not released a full understanding of how much VAT inputs we can offset against the VAT collected.

“The financial industry is exempt apart from the portion of VAT we collect on the fees. How much can be offset against the VAT we pay on our supplies?”

Mr Jennings said commercial banks feared they would end up paying “a lot more than we recover” in VAT, although he acknowledged that the Bahamas was in line with how most other countries treated banking and financial services.

He warned that all banking users would be impacted “to some degree” by the 7.5 per cent VAT that institutions would have to add to their fees and other service charges.