The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian insurance industry yesterday urged the Government to clarify which inputs it will be allowed to claim Value-Added Tax (VAT) credits on during the 2015 first half, a leading carrier saying this “makes all the difference in the world”.

Patrick Ward, Bahamas First’s president, told Tribune Business it was vital for the industry to know which ‘inputs’, if any, it would be excluded from claiming VAT credits on.

While the Ministry of Finance’s revised ‘guidance notes’, published yesterday, promised that insurance registrants could claim “input tax credit paid”, it did not provide the details sought by Mr Ward and others.

The Bahamian insurance industry is somewhat unique, in that its property and casualty, and health, segments have six months longer than almost every other sector to transition to VAT.

These segments will only become ‘VAT-able’ from July 1, 2015, some six months after virtually all other sectors in the Bahamian economy (apart from those ‘exempt’ or ‘zero-rated’) become taxable.

However, as outlined by Mr Ward, this policy threatened to create a “very significant material cost” impact for most Bahamian insurance companies, as - by virtue of not being ‘VAT-able’ - they would be unable to claim back, or ‘net off’, the tax paid on their inputs during the 2015 first half.

To avoid a huge tax-induced increase in their cost base, the Bahamian insurance industry has thus been lobbying the Government to receive some kind of ‘credit’ for the VAT paid on their inputs.

The Ministry of Finance’s revised ‘guidance notes’ appear to grant this request, stating: “Registrants who will supply insurance services that will become taxable on July 1, 2015, may be allowed to claim input tax credit paid in respect of those services.

“The rules will be set out in a VAT Rule.”

Mr Ward, though, emphasising that the ‘devil was in the detail’, told Tribune Business that it was vital for the Bahamian insurance industry to know which VAT input payments it would be able to claim credits again.

“That’s the key point; that the rule be set out,” he said. “At this stage, we don’t know exactly what will be allowed as part of the input credits. That makes all the difference in the world.”

The sector is now waiting to see if any inputs will be excluded from the ‘credit’ refunds, and Mr Ward added: “It’s a very key issue.

“There’s some very significant implications from a cost perspective from the property and casualty companies, and the life and health companies.

“It’s potentially a significant, or material, issue for most companies.”

The revised ‘guidance notes’ also confirm that vehicle repair services, provided in relation to an insurance claim, will also be subject to 7.5 per cent VAT.

While insurance companies will be able to reclaim, or ‘net off’, this payment as part of their ‘input’ tax payments post-July 1 next year, Mr Ward said this was one area where the sector needed to know if the 2015 first half ‘credits ‘ will apply.

“We’re trying to ensure that is the case in the transition period,” the Bahamas First chief added.

Another sector source, speaking on condition of anonymity, said: “We have a big issue with claims. Are we going to be allowed to claim back claims costs between January and July?”

The Ministry of Finance, in its guidance notes, also confirmed that insurance claims paid to another VAT registrant, and which covered supplies subject to the 7.5 per cent levy, will be “deemed to be VAT inclusive”.

“For example, if a business’s inventory was destroyed by fire, and the business was compensated by the insurance company for the loss, the business is required to report output VAT on the amount received from the insurance,” the notes said.

Mr Ward told this newspaper that this was an area that required further discussion with the Government, and the international insurance ‘expert’ it is bringing in as a consultant.

Insurance industry sources confirmed to Tribune Business that the sector met with John Rolle, the Ministry of Finance’s financial secretary, yesterday to discuss its VAT-related concerns. Another meeting is “hopefully” scheduled for within the next two weeks “to go into some of the issues in more detail”.

An industry representative, speaking on condition of anonymity, said: “The New Year and implementation of VAT are just around the corner, and there are a lot of issues.

“Because of the peculiar nature of our industry, and the way we operate, which is unique to financial services, there’s a lot of issues that need to be sorted out to see how they work practically.

“It’s alright in theory, but until we sit down with a case in fact, it’s not possible to allow for every eventuality, every occurrence. Both sides are still in the learning process at the moment.”