The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Bahamian insurers yesterday said they are at “loggerheads” with the government over VAT refunds, branding the situation “untenable” due to the impact on cash flow and solvency margins.

Warren Rolle, the Bahamas Insurance Association’s (BIA) newly-elected chairman, said the industry was facing a “major disruptor” due to the Department of Inland Revenue’s (DIR) interpretations of how VAT works in practice.

“When VAT was implemented in 2015, representations were made by government officials - and details shared in guidance notes by the Department of Inland Revenue - indicating that general insurance claim settlements were deemed to be VAT inclusive,” he explained.

“Therefore, insurers were allowed these input tax deductions to be offset against VAT collected and payable to the government. It is noteworthy that insurers advised the government of the day that it was reasonably foreseeable that following a major catastrophic event, significant credits would be owed to insurers following settlement of claims. Nonetheless, the government maintained its position and the industry proceeded with its remittance to the government on the aforementioned basis,” said Mr Rolle.

Mr Rolle added that when Hurricane Matthew struck in 2016 it created insured losses in excess of $400m. “Based on the established VAT treatment that had been accepted by the DIR, the event resulted in substantial credits being owed to insurers. Some insurers continued to offset the input tax deductions while others sought refunds from the government,” he said.

“General insurers have recently received assessments from the DIR indicating that a substantial portion of the input tax deduction, retroactive to 2015, is now disallowed as they were claimed on non-VAT registrants. This is a fundamental departure from the policy communicated to the industry and the practice that has persisted for several years, resulting in significant sums being allegedly owed to the government.

“It would seem a stretch that all general insurers misinterpreted what was communicated with respect to the treatment of input tax deduction at the inception of the policy. Further, it is curious that this only became an issue after insurers offset the significant credits owed to them by government, or sought credit refunds, following the passage of Hurricane Matthew.”

Mr Rolle described the current stance adopted by the DIR as “untenable”. He warned: “It has major implications on cash flows for general insurers, and will affect the solvency margins which our regulator pays keen attention to.

“We appreciate that the Government requires revenue to meet its fiscal objectives, but it cannot do so to the detriment of an industry that has provided a sustained and consistent source of employment for hundreds of Bahamians. The insurance industry has consistently paid its share of taxes, and has paid hundreds of millions of dollars over many years to assist in restoring the lives of ordinary citizens and businesses following catastrophic and other events.

“The Government’s position as communicated by the DIR is one that the insurance industry cannot willingly embrace. Government is continuous, and a new administration cannot simply disregard or dismiss policy decisions and obligations of its predecessors. We have been in dialogue with the DIR but are at loggerheads.”

Turning to The Bahamas’ bid for full World Trade Organisation (WTO) membership, Mr Rolle said that while the BIA supports the underlying principles of a free market economy, and recognises that the Bahamian insurance industry is global in nature, it does not believe accession should put domestic insurers at a disadvantage compared to their foreign counterparts.

Calling for a level playing field, he said: “Currently, general insurance intermediaries are required to be 60 per cent Bahamian owned. Whether that restriction remains under the WTO remains to be seen. The BIA has provided the Government with a comprehensive position in relation to the offer made on behalf of the industry, and we look forward to further discussions in this regard.”

Sir Franklyn Wilson, a principal in the majority shareholder of RoyalStar Assurance, the Bahamian property and casualty underwriter, earlier this week voiced fears about renewed “tardiness” relating to VAT refunds generally, warning that the issue “could shake” still-fragile business and investor confidence.

“In the last two business days I attended two board meetings and, in both instances, the chief executive was making the point that the company’s cash flow was being adversely affected by the inability to get VAT refund payments on a timely basis,” he told this newspaper. “Every company operates on the basis that VAT receivables from the Government are as near to cash as you can get.

“If that turns out not to be the reality, it could shake a lot of commerce in the country. I make these comments in a public way because I believe, in the interests of the economy more broadly, the authorities provide some evidence and assurance that any hiccups are being addressed and refunds will happen as the private sector has been led to believe they will.

“The implications are significant. My genuine interest is that the governance of the country takes place in a way that fosters national development. I bring this to the authorities because they may not be aware of it. Hopefully, they should be aware of it and prevent it from becoming a problem.”