The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian insurers yesterday expressed concern that Value-Added Tax (VAT) would be levied on top of the existing 3 per cent premium tax, fearing this will increasingly drive consumers to “opt out” of renewing their policies.

Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business he had been “led to believe” that VAT would be imposed on the premium tax, effectively acting as “a tax on a tax”.

Disclosing that he and other insurance underwriters had been seeking clarity on this issue from the Government for “some time’, Mr Ward said such VAT treatment would be “inequitable”, as no other industry was being subjected to the same.

“I’ve been led to believe that VAT will be applied to the premium tax, so it’s a tax on top of a tax,” Mr Ward told Tribune Business.

‘“I think it’s inequitable, and as far as I’m aware, no other industry has the same treatment. It adds an additional burden for consumers on top of the burden already imposed.

“Rather than a 7.5 per cent [premium price] increase, it’s going to be closer to 8 per cent when you consider 7.5 per cent on top of 3 per cent.”

The Bahamas Insurance Association (BIA), and its committee dealing with VAT, are due to meet tomorrow to further discuss the industry’s concerns over the Government’s tax/fiscal reform plans, and the impact this will have on the sector.

Mr Ward suggested the ‘tax on tax’ concern was likely to be raised, telling this newspaper: “We’ve been asking specifically about this for quite some time, and I’m hoping this will be one of the issues addressed at the meeting.”

He was backed by Tom Duff, Insurance Company of the Bahamas’ (ICB) general manager, who told Tribune Business: “Our hope would be that the VAT sits in parallel, not on top of, the premium tax as that would put a greater burden on consumers.

“My personal view is that if the VAT sits parallel to the premium tax, side by side, it will be much better for all.”

Mr Duff, too, confirmed that the insurance industry was seeking clarity on the issue from the Christie administration.

The Government altered course for the second time, in its VAT treatment of the insurance industry, in the Bill and regulations that were unveiled and passed by Parliament in August.

While life insurance and annuities are to be treated as VAT ‘exempt’, given that they are long-term savings products, all other forms of insurance - property and casualty (home and auto) and health - will be VAT-able and attract the 7.5 per cent levy on top of consumer premiums.

This represented a second reversal, after the sector had initially been told it would be subject to 15 per cent VAT, only for the Government to reverse course and say it would be totally ‘exempt’.

To soften the blow for property and casualty, and health insurers, the Government has given the sector an extra six-month window until July 1 before it has to levy VAT on consumer premiums. All other sectors have to start doing so from January 1.

While the Bahamian insurance industry would prefer to be completely VAT ‘exempt’, believing this will minimise the business loss from a further increase in already-high premium prices, Tribune Business understands some sector players would prefer to be VAT-able from January 1.

They would prefer to forego the six-month ‘window’ due to the fact that ‘exempt’ status means they will be unable to recover their VAT ‘input’ tax payments, something they fear will increase their costs and place them at a competitive disadvantage.

Howard Knowles, the BIA’s head, effectively confirmed this to Tribune Business, although he said such sentiments were ‘ahead of the game’.

He emphasised that the Bahamian insurance industry still wanted to be completely VAT ‘exempt’, and hoped to persuade both the Government and the consultant it had promised to bring in of this position’s merits.

Yet Mr Knowles added: “It has been stated that if we are going to be VAT-able, we would prefer to pay VAT from January rather than July, because we believe we would be at a disadvantage if we’re unable to claim back our inputs.”

The BIA chief, though, acknowledged that the Government had indicated it was too late to switch the sector’s VAT transition from July 1, 2015, to January 1.

“I wasn’t at the meeting, but from what I understand they said it was too late to be VAT-able in January,” Mr Knowles told Tribune Business. “That’s my understanding of the most recent conversation with the Ministry.”

Mr Knowles said the insurance industry’s VAT preference was to be ‘zero rated’ where it could recover its input tax payments and not levy a 7.5 per cent charge on consumers, but this was never going to be accommodated by the Government.

He added that the BIA was now preparing for the meeting with the consultants the Government had promised to hire, with this likely to happen in October. Until then, the sector’s position will not change.

Mr Ward, meanwhile, said he was waiting to hear the views of industry colleagues on whether insurance should be VAT-able from January 1.

Acknowledging that there were merits to this argument, the Bahamas First chief said the sector had still to assess whether the potential loss of business from an earlier 7.5 per cent levy on consumers outweighed the benefits of being able to recover ‘input’ tax payments.

ICB’s Mr Duff, meanwhile, questioned whether it was “practical” for the industry to go for January 1 VAT start date given the amount of work required to ready IT systems.

He said a decision would have to be taken quickly, given that renewal notices for the New Year would be sent out six weeks in advance - placing this in mid-November.