The Tribune

• 90-day transition for retail repricing ‘nightmare’

• Super Value chiefs fear duration ‘cuts it short’

• Hotel concern: New rate on ‘year’s busiest day’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Retailers have been given a 90-day transition period to deal with the repricing “nightmare” caused by the VAT rate cut, one saying yesterday: “We hope this is the last change for a very long time.”

Tara Morley, the Bahamas Federation of Retailers co-chair, while welcoming VAT’s reduction to a 10 percent rate told Tribune Business that the timing of its implementation threatens to create “a big distraction” for merchants just when they need to be focusing on maximising a Christmas sales season that could make the difference to post-COVID survival for some.

Besides the computer system and software adjustments required by the two percentage point VAT rate cut, Bahamian retailers also have to alter their in-store and warehouse inventory pricing to account for the 10 percent levy that will be introduced on January 1, 2022.

Kendrick Moss, Super Value’s operations manager, described this re-pricing as “a massive undertaking” for the 13-store supermarket chain given that it is dealing with 30,000 separate stock keeping units (SKUs) each with multiple items underneath them. He hinted that 90 days may be too short a time in which to accomplish this properly.

And both Ms Morley and Rupert Roberts, Super Value’s president, said neither of them had received formal government communication of the 90-day repricing “transition” which was confirmed to this newspaper by Senator Michael Halkitis, minister of economic affairs.

Responding to Tribune Business questions by voice note, he said the Government expected the switch to the new, lower VAT rate to “be smooth” while anticipating that all VAT registrants - companies that collect the tax on the Government’s behalf - will “for the most part” be ready on January 1.

However, retailers and merchants are not alone in their disquiet about the timing of the New Year’s Day VAT cut implementation. Robert Sands, the Bahamas Hotel and Tourism Association (BHTA) president, told this newspaper that several hotels had “raised concerns” about having to adjust to the 10 percent rate in time for “the busiest day of the year” - January 1.

Mr Sands, though, said he was more focused on “realising increased value” from the VAT rate cut given that it will help to lower the cost of a Bahamian vacation. Given that VAT is applied to room rates, food and beverage and multiple amenities and services offered by hotels, he added that the two percentage point cut could be “quite a savings windfall” for long-staying families and groups.

Mr Halkitis, meanwhile, confirmed both the January 1 implementation date and 90-day “transition” given to merchants to enable them to reprice inventory for the new 10 percent rate. “We’re going forward with January 1 for the reduction. We believe that, for the most part, companies will be ready; it’s just a change from the 12 to the 10 [percent],” he said.

“Now in terms of companies who have to physically change prices on every item, like for example, retailers, who have to go and change prices, or jewellery stores who have tags on items, there is a transition period of 90 days where they are given up to 90 days to have that completed, which is handed administratively, and so which we think is sufficient.”

Noting that the private sector was formally made aware that the VAT rate cut was coming in late October, he added: “So we think the fact that this was tabled..... well, it was foreshadowed on the 27th when the supplementary Budget was read, and then it was laid I think about a week-and-a-half later, that that should have given enough time for those who just have to make a change, change the rate in their system, that’s enough time for them, and those who have to physically go and change tags there is a transition period of up to 90 days for them to be able to do that.

“We think it should be smooth, but we are always in constant communication with businesses and hearing their issues, seeing how we can have a smooth transition, but we think everybody will be ready.”

But Ms Morley, who operates three retail formats, Cole’s of Nassau, Morley for Men and Maison Decor, told Tribune Business: “I am actually still waiting for them [the Government] to get back tome on what the timeline is for repricing. Usually we have a grace period of 90 days; three months.

“At the end of the day there really hasn’t been a lot of information provided by the ministry [of finance] to the retail community on this 90-day grace period. Nobody has been informed about that yet. It’s always a nightmare to do the repricing. People just need to stick with a VAT rate and stop using it as a political tool.”

The repricing of in-store and warehouse inventory by Bahamian merchants is just one of the issues that has to be considered when adjusting for VAT implementation/changes. The latest alteration will be the third time in seven years that merchants will have to reprice, as they did it for 2015 with VAT’s introduction and when the rate was raised to 12 percent in mid-2018.

VAT rate changes, and/or new zero ratings and exemptions, are not as easy as flicking and switch. Similar pricing transitions were permitted on both those occasions, but issues such as goods and services “paid for in advance” but not delivered until after January 1, 2022, will be another issue in terms of which VAT rate - 12 percent or 10 percent - applies.

Guidance notes on how such issues will be treated have yet to be released by the Ministry of Finance. Ms Morley, meanwhile, said: “Every time the rate changes it involves a lot of work on the back end from retailers. We’re a VAT collector for the Government. Whenever we have to have prices repriced, it creates a lot of work for everybody. It will be quite an undertaking as always.”

She added that her retail formats were already working on changing their various point of sale (PoS) systems to cope with the 10 percent VAT rate to achieve “the easiest way to make the transition and reprice things as quickly and as smoothly as possible”.

The amount of work, and degree of difficulty, involved in VAT-related repricing will vary between retailers, Ms Morley added. She explained that much depends on how successful a Christmas season merchants have, and how much of their existing inventory - priced at 12 percent - they are able to sell-off before New Year’s Day when the cut takes effect.

Retailers with faster inventory turns and a smaller numbers of SKUs will likely face an easier task, she explained, but those selling products that are “ticketed by manufacturers before they are shipped” and with long delivery lead times will face greater challenges. “It’s always a bit more onerous for those retailers,” Ms Morley said.

“Some people have started to think about this, and others have not given it any thought because they are focused on making Christmas money and chasing down supply chain sources. They have not had time to focus on it [the VAT change].”

Asked whether the timing could have been better for the retail community, Ms Morley agreed and said: “It’s always a big distraction every time this occurs, and it distracts the business community from being able to run their businesses and create more profitable businesses that drive VAT revenues and help to streamline the ease of doing business.

“We hope this will be the last VAT change for a long time.” Super Value’s Mr Roberts, meanwhile, also revealed he was unaware of the 90-day repricing transition until informed about it by Tribune Business.

Based on feedback from his operations manager, Mr Moss, the Super Value chief said 90 days was likely “cutting it short” for large chains such as his to “do it properly”. Mr Roberts added: “If we don’t think we can accomplish this in three months then we have to go back to the Ministry of Finance and request 120 days or whatever it takes.”

With Super Value and its Quality Supermarket affiliate possessing “in the vicinity” of 30,000 SKUs, Mr Moss said: “We have a lot of inventory at different prices. It’s a massive undertaking to do the big stores in 90 days.”

With 80 percent of items likely to remain on shelves, and in the warehouse, “for a long period of time”, he added: “It’s going to take a while to clear the shelves and warehouse” of products priced at the old 12 percent. “We could try and do it within the time, and will make every effort, but it’s a big target. It involves a lot of overtime costs to do it in the required time” Mr Moss said.

Pointing out that price control compliance is another factor retailers have to cope with when adjusting for the new VAT rate, Mr Roberts said: “We want to do it properly and do it to the Government and customer’s satisfaction. We don’t want to miss any items where they come back later on and say we have committed a violation, and they fine us another $120,000.

“It would have been nice if they had done this at the end of January rather than the end of September, because then it would not take our IT people’s holiday. But, of course, they didn’t think of all that.”

The BHTA’s Mr Sands, meanwhile, said he was “optimistic” that hotels and tourism operators will be ready for the new VAT rate come January 1 as the adjustment largely involves just computer system and software changes.

“It’s not a major issue for us,” he told this newspaper. “The timing, certainly for New Year, which is the busiest day of the year, some of my industry colleagues have raised a concern but I am of the opinion that the sooner it [VAT] can be reduced the better for the visitor in terms of realising increased value from his/her vacation.”

Mr Sands voiced hope that the VAT rate cut “straight across” for the tourism industry will boost guest satisfaction and value for money perceptions, “and for those paying for an increased length of time, staying at properties and dining and so forth, this could be a windfall in terms of savings for them”.