The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is developing a ‘virtual bonded warehouse’ concept to ease the Value-Added Tax (VAT) transition for businesses with large physical goods inventories, with private sector leaders yesterday urging “some give and take” from both sides.

The concept was explained to numerous industries yesterday during meetings with top Ministry of Finance officials, as both sides bid to avoid ‘double taxation’, inventory run downs and temporary business closures at the January 1 VAT transition point.

While the ‘virtual bonded warehouse’ concept is still being developed, and not set in stone, Tribune Business sources said it would require Bahamian companies to furnish the Government with lists of all items they have in stock during November and December. No taxes would be paid at the border.

Some contacts close to the process said one possible scenario might involve businesses paying no import duties on that inventory, even if some or all of it was sold in the run-up to Christmas.

And they suggested that companies might have a 28-day ‘grace period’ in the New Year to pay the due tax on these items sold pre-VAT, effectively giving them a 90-day window in which to pay under the old structure and allowing them to file when the first VAT payment is due from companies with an annual turnover exceeding $5 million at end-January.

Whether the Government will go for that is unclear, due to the negative temporary impact on its cash flow, but the ‘virtual warehouse’ plan is designed to replace the physical ‘bonded warehouse’ idea that was initially mulled for the VAT transition.

Customs and businesses simply lack the space to hold large amounts of inventory in bond, hence the new proposal, which would see inventory bonded ‘virtually’.

This is designed to ensure the correct import duty rates are applied, especially for products where the Tariff schedule changes on January 1, 2015. It also prevents VAT from being incorrectly applied and avoids double taxation.

Frank Comito, the Bahamas Hotel Association’s (BHA) former executive vice-president, attended the ‘virtual bonded warehouse’ presentation given to the Bahamian retail industry yesterday.

He told Tribune Business: “It was a broad meeting on how the virtual warehouse will work during the transition period to VAT.

“The Government is working to help ensure as smooth a transition as possible, and creating a virtual warehouse scenario, as long as businesses are up to speed and their processes are ready, should be very helpful for business.”

Confirming that all major retailers and downtown Nassau/Bay Street businesses were present, Mr Comito said the Government was “still vetting” and finalising the ‘virtual bonded warehouse’ concept, and seeking private sector feedback on it.

He also affirmed that it would likely involve Bahamian businesses providing the Government with inventory lists for November/December 2014, with due duty calculated on whether a product was sold pre or post-VAT implementation.

“In principle, it sounds good,” Mr Comito added. “That’s a very helpful process for business, but they’re going to have to be well-informed on it. The Government has started the education process, and it will go through some other stages in the next few weeks.”

Concerns over managing the transition to VAT and the new tax’s implementation have now started to come to the fore, with food retailers and wholesalers reiterating previous concerns that they simply cannot re-price thousands of items overnight on New Year’s Eve to make them VAT compliant.

Gowon Bowe, the Tax Coalition’s co-chair, told Tribune Business he was personally unaware of the ‘virtual bonded warehouse’ plan, but agreed that the Government needed to work closely with the private sector to develop a transition plan.

“Whilst it’s very complicated, the Government has to show some give and take on that front,” Mr Bowe told Tribune Business.

““Because right down to changing the sticker prices is going to be an issue from day one, and there may be instances where you may have paid Customs duties at a different rate from the new Tariff Schedule.”

Calling for “compromise”, especially for companies with large inventories, Mr Bowe said he had been assured by John Rolle, the Ministry of Finance’s financial secretary, that the Government was “very cognisant” of transition issues and working with the private sector to “come up with workable solutions”.

Recalling that Rupert Roberts had once told him of the “mammoth” number of stockkeeping units (SKUs) that Super Value carried, some 70,000, Mr Bowe said the supermarket chain’s owner estimated it would take three months to re-price them all.

Mr Bowe added that the VAT guidance notes would aid the transition, with many companies “taking the stance: ‘Let’s do what we can today’.”