The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s about-turn to eliminate VAT on construction services in the Dorian-ravaged islands was yesterday hailed as “a tremendous help” that will lower costs and speed-up rebuilding.

Ken Hutton, the Abaco Chamber of Commerce’s president, who had last year pushed hard for the Government to extend VAT-free treatment to this particular service, told Tribune Business the move was “fantastic news that will go a long way to helping us rebuild Abaco”.

The Government formally extended the VAT waiver by tabling an amendment to the Special Economic Recovery Zone Order in the House of Assembly yesterday. It also made the construction services treatment retroactive to December 1, 2019, when the zones took effect.

Under the heading “VAT zero rating on the supply of construction services”, the amendment reads: “For the period commencing on the first day of December 2019, and ending on the 30th day of June, 2020, the supply of construction services shall be zero rated under the Value-Added Tax Act 2014.”

The amendment was signed by K Peter Turnquest, deputy prime minister, on February 28, 2020. He told Tribune Business yesterday that the change was made in response to feedback from both the Abaco and Grand Bahama Chambers of Commerce, as well as residents in the two Dorian-hit islands.

“I think it’s going to be significant,” Mr Turnquest said of the amendment’s impact. “It’s a tremendous cost saving for those actively engaged in reconstruction, and we want to encourage people not to sit on this as these incentives will not last forever.

“We encourage them to take advantage of it so that they can rebuild their homes, businesses and communities as quickly as possible. We’ve been listening to the residents, these communities and the challenges they’ve been having with respect to that, as well as doing our part to stimulate the reconstruction effort.”

The extension of VAT-free, or zero-rated, treatment to construction services represents a significant u-turn by the Government in just two months. Mr Turnquest told this newspaper on December 11, 2019, that eliminating VAT on services in the Dorian-hit islands would be difficult to police and too costly, while granting tax breaks to companies that do not need them.

Singling out construction labour, in particular, as an area where the government would have liked to provide concessions and “do more”, Mr Turnquest said then that it needed to “be reasonable” because the Public Treasury stands to lose “significant” revenues through the tax breaks already granted.

“One, because it is difficult to control,” Mr Turnquest told Tribune Business of the government’s thinking in declining to provide the Bahamian economy’s dominant services sector with a VAT break.

“Second, if we do that, we would be giving wide-ranging concessions to businesses that don’t really need it; hotels, Freeport’s industrial sector, and all those various entities that provide services. Remember, the concessions are intended to help with the reconstruction effort. We are giving concessions on items people have to replace.

“In addition, this is a significant cost to the Government, and we still have a government to run which has to be funded. We’ve done the best we can. We’d love to do more, particularly as it relates to construction labour. We’d love to do more, but we have to be reasonable.”

While the Government is likely to come under fire from its political opponents over its about-turn on construction services VAT in the disaster zones, the Minnis administration can argue that it has listened to the concerns of both the private sector and residents.

Its action means that VAT will be totally eliminated from the construction industry input chain for both physical goods as well as services. In particular, the 12 percent levy will be removed from the industry’s labour costs, which is a significant expense component, thereby saving rebuilding homeowners and residents valuable sums.

“That is fantastic. That is fantastic news,” Mr Hutton told Tribune Business when informed by this newspaper of the Government’s action. “I think that is a very welcome change to the situation, and I think it will go a long way to helping us rebuild Abaco.

“I think there is only so much money out there. The more of it that can be focused to the rebuilding effort the better. That’s a tremendous step forward. They’re listening. I can’t tell you how happy I am to hear that. You’ve made my day.”

Mr Hutton had last year warned that the Government was in danger of leaving the post-Dorian recovery effort “half finished” by failing to eliminate VAT on services as well as physical goods imports.

Calling for a rethink, he said such a policy would continue to levy 12 percent VAT on contractor bills and those of other repair professionals, inclusive of labour costs, while at the same time leaving all construction materials tax-free.

Mr Turnquest yesterday said the Government had yet to address the issue of VAT refunds for taxes already paid on construction services in the Dorian-hit islands between December 1, 2019, to now, but would do so as cases emerged.

“The other thing that is going to be a tremendous help is we have a lot of non-governmental organisations and relief organisations that are using donated funds and local labour to repair and rebuild structures here,” Mr Hutton added.

“When hiring local labour, those local contractors were having to charge VAT, so we were charging VAT on donated funds with the actual labour component.”

Mr Hutton said Abaco’s post-Dorian reconstruction was progressing “one day at a time”. He added: “It’s not happening overnight. It’s going to take a long time, fantastic effort and it’s going to take commitment.

“We’ve got a long, hard struggle but at the end of the day it’s going to be worth it. We’ll get Abaco back bigger, stronger and more resilient than ever.”