The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-Cabinet minister yesterday pleaded with the Government to exclude Bahamians from “the dragnet” created by VAT’s reimposition on construction services in the Dorian-devastated islands.

Senator Darren Henfield, former minister of foreign affairs and the previous North Abaco MP, told the Senate that the 10 percent levy’s reintroduction on such services with effect from New Year’s Day had only served to increase rebuilding costs “in an area where we need relief” on both that island and Grand Bahama.

Acknowledging the Government’s concern that it was giving away too much in tax concessions, especially to wealthy foreign developers and second homeowners who could afford to pay, he argued that it could address the issue while creating a “carve out” that ensures the waiver remains for Bahamian property owners.

“In the interim, the Government must reconsider the decision to reapply VAT to construction services,” Mr Henfield, the Opposition’s Senate leader, asserted. “It seems we’ve added additional costs to an area where we need relief in on construction.

“I know you [the Government] may want to correct the mischief of second homeowners who can afford to pay, or developers, to pay for their construction. That’s why I feel we should carve out a piece for Bahamians specifically so we’re not caught up in that dragnet. Let Abaco catch itself, please, before you put that on contractors.”

The Disaster Reconstruction Authority (Special Economic Recovery Zone) Order 2022, which took effect on New Year’s Day, brought the VAT ‘zero rating’ treatment for construction services to an end on New Year’s Eve.

Services provided in 2021 must have been invoiced before year-end, and paid in full by end-March 2022, for the VAT relief to apply. The end to the ‘zero rating’ means home owners and businesses in Abaco and Grand Bahama will now have to pay an extra 10 percent on labour and other service costs to contractors who are VAT registrants.

This creates a potentially significant hike in rebuilding costs as labour typically accounts for around 50 percent of the price, threatening to worsen the impact of last year’s sharp rise in building materials prices that show no signs of slowing down following the COVID-induced supply chain crisis.

And it also acts as a potential deterrent to Dorian-devastated businesses and homeowners hiring experienced contractors and tradesmen to rebuild their properties - a move that could potentially compromise construction standards and resilience at a time when The Bahamas is seeking to build back better in preparation for future Dorian-type storms.

The Ministry of Finance, in a statement responding to the outcry, pointed out that VAT and other tax breaks on physical goods imports, such as building materials; furniture; furnishings and appliances; hardware supplies; electrical fixtures and materials; and plumbing fixtures and materials had been extended until December 1, 2022.

However, it seemed to imply that the reimposition of VAT on construction services would only impact a small minority of wealthy homeowners who could afford to pay the tax. “It should be noted that the vast majority of persons in the impacted areas, in repairing their property, will purchase materials and employ labour to effect the repairs,” the Ministry of Finance said.

“With the extension of the SERZ Order, those persons will not be affected because building materials will remain tax free and VAT is not charged on labour in these circumstances. The removal of the zero-rating on construction services is expected to impact a minority of cases, mostly high-end properties.

“The Ministry of Finance will continue to process applications for relief under the SERZ on a case-by-case basis and consider any application for special consideration on its merits.”