The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Tax Coalition co-chair believes ‘tax credits’ would be a “much simpler” system to ease the Value-Added Tax (VAT) transition than the Government’s proposed ‘virtual warehouses’, and called for the ‘bonded period’ to be longer than two months.

Robert Myers told Tribune Business he believed the ‘virtual warehouse’ idea would be “more difficult” to manage than simply giving impacted businesses ‘tax credits’ for items that had attracted the old import tariff rates despite being sold post-January 1.

Under his ‘tax credit’ plan, businesses who sold products subject to reduced Excise/duty rates post-January 1, yet had imported them prior to the change taking place, would be refunded the difference via an offset against VAT paid on the sale.

However, as revealed by Tribune Business last week, the Ministry of Finance is proposing a ‘virtual warehouse’ concept. Under this plan, companies importing inventory during November and December 2014 will not pay the Excise Tax/duty normally due at the border.

If products imported during this ‘two-month window’ are sold at any time prior to January 1, the business will pay the current duty sum/rate at the time of sale. For those products sold post-VAT implementation date, and which have revised tariffs, the business will pay VAT plus the new duty rate at time of sale.

Such a scheme, which was presented to the private sector last week, has similarities with the over-the-counter ‘bonded goods’ regime in Freeport, where due duty is paid at ‘time of sale’ - not at the border.

However, Mr Myers is sticking to his call for ‘tax credits’, and told Tribune Business that the proposed ‘bonded period’ be longer than two months.

He recommended that it be at least four months, in effect starting from now, because a November/December window would be of little benefit for companies with a longer ‘inventory turn’ cycle.

Mr Myers said some of his companies, and others that bought in bulk, often carried products for four to six months before they were sold - a duration double to triple that proposed by the Government. Among those sectors least likely to be aided by the ‘virtual warehouse’ plan is the auto industry, which typically orders product five-six months in advance.

While not at last week’s ‘virtual warehouse’ meetings with top Ministry of Finance officials, Mr Myers said his companies did have representatives who attended and reported to him.

“There were obviously a lot of questions and answers,” he told Tribune Business. “It’s [virtual warehouses] going to be difficult to manage, and be a difficult workable situation, but it’s certainly an attempt to give us credit for the items in stock.”

Mr Myers argued that ‘tax credits’ would “probably be easier” in assisting large importers to manage the VAT transition, especially given that the new tax now had far fewer ‘exemptions’, while there were relatively few adjustments to the tariff schedule.

“It’s really swings and roundabouts,” he told this newspaper. “You total up everything in stock on New Year’s Eve that’s going to have reductions in duty.

“You’re going to collect VAT on those products when they’re sold, and just give those people an immediate tax credit on their VAT account. You apply that [VAT paid] against their tax credit. You’ll have funds on account with the VAT Department that they’ll start working off.

“Giving us tax credits based on existing inventory is a much simpler system, but we haven’t vetted that with the Ministry of Finance.”

Estimating that just 100-150 companies, namely the major retailers and wholesalers, would be affected by this issue, Mr Myers said: “My position is that doing these entries is far more complicated for the Government and private sector that saying: ‘We’ll give you a tax credit’.”

The Government has moved swiftly to allay private sector fears about a costly and complex VAT transition period, unveiling its ‘virtual warehouses’ proposal last week after various industries had expressed concerns.

Yet fears remain. “My concern, and the Chamber’s concern, from a broad standpoint is that two months is not the inventory turn for most people,” Mr Myers told Tribune Business.

“Typically, we have product in stock for at least four-six months. Most of us, to be as competitive as possible, are buying in bulk. My inventory turn is much slower, but I buy in big bulk, so I’m able to get better product and discounts on prices.”

Mr Myers employs such a strategy with his Freeport-based VTrade business. He added that major retailers, such as SuperValue, the hardware stores and prominent wholesalers all employed similar strategies, meaning that a two-month ‘bonded window’ would be unlikely to help them.

“My problem is that there’ll be three-four months worth of inventory that can’t be covered by this,” he told Tribune Business. “I’d argue that it should be five months, not two. We’d like to see it extended for three-four months, and implemented sooner rather than later. But there’s not a perfect system. It’s a workable scenario.”