The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s plan to levy Value-Added Tax (VAT) on services transactions between Grand Bahama Port Authority (GBPA) licensees was yesterday described as “peculiar”, given that it would likely generate zero revenue for the Public Treasury.

Kevin D. Seymour, a senior Grand Bahama Chamber of Commerce executive, told Tribune Business that besides likely contravening the Hawksbill Creek Agreement (HCA), the proposal would create unnecessary administrative costs for both the Government and private sector - with no financial gain for either.

This, he explained, was because GBPA licensees would be able to either ‘reclaim’ the VAT paid on ‘business-to-business’ services transactions, or ‘net it off’ against the VAT consumers paid on their outputs, because it is a levy on their inputs.

Because of this, and with VAT only paid by the end-consumer, Mr Seymour said the revenue benefits to the Government from taxing services transactions between GBPA licensees would be negligible.

And, with Freeport’s manufacturing sector making it the Bahamas’ exporting hub, the Government might even lose money, as exporters - ‘zero-rated’ for VAT purposes - will still be able to claim ‘refunds’ for taxes paid on their inputs, while paying nothing on their outputs.

“It’s peculiar, and I think just based on the merits of the cash flow, that needs to be revisited and the Government come up with a different solution there,” Mr Seymour told Tribune Business of the Government’s ‘Freeport services’ VAT plan.

“When you look at services in the context of services provided between licensees, they are saying such services are VAT-able. But the recipient [business] can claim an input credit for it.

“The net impact to the Government is a zero,” Mr Seymour added. “This is a transaction where there will be a flow of funds, but what will the net impact for the Treasury be, especially if the business happens to be a net exporter?

“That one is a bit of a puzzle that’s unique to Freeport. Maybe they need to have a look at that again. If the economic impact is the same as for goods [under VAT], maybe they need to bundle goods and services” and treat them equally in Freeport come January 1.

Mr Seymour suggested the Government would create extra administrative and bureaucratic costs for the Freeport private sector, for no revenue gain, if it persisted with its plan to levy VAT on ‘business to business’ services transactions and required companies to remit the necessary paperwork/monies to it.

“If those monies do not end up in the Treasury, and there is zero impact, why have Port licensees bearing the cost of it,” Mr Seymour told Tribune Business.

The ‘VAT on Freeport services’ issue was one of several concerns unveiled yesterday by the Grand Bahama Chamber of Commerce, which described the Government’s plans in this area as “subverting a core principle of Freeport’s operation as an international free trade zone”.

Echoing Mr Seymour’s thoughts, the Chamber added: “While the VAT paid may be credited back to the business, this appears to be an unnecessary exercise.

“It also produces an unnecessary but costly exchange between companies that nets Government no tax revenue.”

Mr Seymour, meanwhile, said the ‘VAT on Freeport services’ issue also went to the heart of the intent behind the Hawksbill Creek Agreement when it was signed in 1955, and the extensive tax incentives granted for the city’s development.

The then-government and Wallace Groves negotiated every conceivable tax exemption, but because no taxes on services were contemplated then - or for the future - that issue never arose.

However, Mr Seymour told Tribune Business that the “principle wording in the agreement says: Exempt from taxes of any kind”.

While vaguely worded, and subject to legal challenge and interpretation, Mr Seymour said it seemed the parties in 1955 wanted to “give Freeport a tax-free status” - including exemption from services-related levies.

“It goes back to the heart of Freeport, and what we are all about,” Mr Seymour added. “The whole Hawksbill Creek Agreement was designed to build out a new level of infrastructure and create economic activity.”

Other concerns raised by the Grand Bahama Chamber involved whether VAT ‘at the border’ would be based on just Cost, Insurance and Freight (CIF) or CIF plus Customs duties.

The latter option would see tax levied upon a tax, but Mr Seymour said the financial secretary, John Rolle, clarified that last week by suggesting VAT would be levied just on the CIF total.

The Grand Bahama Chamber also expressed concern that the Government’s reform focus was purely on VAT and gaining more revenues, rather than dealing with wider concerns and reining in public spending.

“The current VAT roll-out process directs the national conversation around proposed details for the implementation and collection of new taxes, from businesses and, ultimately, the people,” it said.

“An equally important conversation to be had simultaneously must be around the detailed commitment and measures that will be implemented to curb and reduce public expenditure.

“By force of law, businesses are being compelled to contribution substantially to balancing the national Budget. The public sector, as a logical and fair contribution to this process, should be compelled to do not less. What we are hearing instead is ‘you contribute now…….and we will contribute later!’”

The Grand Bahama Chamber said it was seeking to organise a follow-up meeting with the Government’s VAT team next month, in a bid to address all the island’s concerns over the new tax.