The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Abaco’s Chamber of Commerce president yesterday said it was “unconscionable” that the Government had yet to reverse VAT’s return on construction services, adding: “There’s a lot of angry people here.”

Ken Hutton told Tribune Business that the Dorian-devastated island had yet to receive a formal response from the Davis administration or its two MPs, Kirk Cornish and John Pinder, to its pleas for the 10 percent levy to be removed with VAT-registrant contractors uncertain whether to bill clients as the deadline for filing and payment looms.

“I would like to say there are so many people here that are incredibly angry,” he blasted. “We were already assured prior to the SERZ (Special Economic Recovery Zone) coming out that it [the VAT exemption on construction services] would be included.

“There are a bunch of very upset people, particularly contractors, who are going through the first month and don’t know whether to bill clients for VAT or not. The fact it’s there, but not been changed, leaves a huge amount of uncertainty which is unconscionable.

“We need that VAT on construction services taken off and it needs to be confirmed as soon as possible. We have inflation in building materials, and now on food and fuel. Adding 10 percent on to the cost of rebuilding your life, it’s not fair.”

Mr Hutton said the former Minnis administration had promised Abaconians that the VAT, import duty and other tax breaks would be in effect for between three to five years to aid post-Dorian reconstruction. While over two years gave now passed since Dorian struck in September 2019, he added that “the world was shut down” for one of those due to COVID-19.

“We’re not going cap in hand on bended knee to ask for a favour from the Government,” Mr Hutton added. “This is what they told us was going to happen, so let’s make it happen. We are not begging for something that we are supposed to be getting. There are a bunch of people right now that are very angry about it.”

With inflation beginning to bite, the Abaco Chamber chief argued that the removal of VAT ‘zero ratings’ and exemptions on breadbasket foods, medicines and other essentials “has certainly taken some wind out of the sails of the economy here”.

“The increase in inflation across the board has certainly not helped,” Mr Hutton said,”so any kind of assistance would certainly be beneficial to getting this place back up and running. Fuel is up 40 percent year-over-year, food is up essentially 20 percent, building materials since December are up 35-40 percent. The supply chain challenge everyone is facing means securing these materials is a challenge.

“Shipping costs are up 10 percent. It’s a challenge, it really is. It’s just another challenge that we’re facing in Abaco that we will have to deal with, and we will. We’re not going to quit. That’s not even in our consideration.”

The latest Disaster Reconstruction Authority (Special Economic Recovery Zone) Order 2022, which took effect on New Year’s Day, revealed that the VAT ‘zero rating’ treatment for construction services effectively came 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 10 percent VAT on contractors’ labour and other service costs.

This creates a potentially significant hike in rebuilding costs as labour typically accounts for around 50 percent of the contractor’s price. With all VAT-registrant contractors now having to charge their Abaco and Grand Bahama customers the 10 percent levy, this could deter persons from hiring such tradespersons, potentially impacting the quality and standard of reconstruction.

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.”

Pro-government Internet and social media blogs subsequently leapt to its defence, asserting that only the likes of foreign second homeowners at Baker’s Bay would be impacted by the reinstatement of VAT and construction services while suggesting that the Government was giving away too much in tax concessions and needed to safeguard its revenues.

However, some 98 percent of Abaco businesses and home owners surveyed by the Chamber said reinstating 10 percent VAT on construction services will “significantly influence” whether they rebuild or not.

The findings revealed more than three-quarters of respondents - almost 77 percent - were either “very concerned” or felt the tax break’s loss would prevent them from being able to afford their reconstruction plans.

Some 20.51 percent - over one-fifth - fell into the category of being unable to rebuild. The survey also found 71 percent were financing post-Dorian rebuilding from their own pockets, with just 16 percent having access to bank/debt funding and the remaining 13 percent able to rely on proceeds from insurance settlements.

Asked about the value of their reconstruction projects, some 66 percent or two-thirds said these were valued at $500,000 or below, with just one-third above this threshold. And the Abaco Chamber’s survey drew 100 percent unanimous responses when persons were asked if construction services should remain VAT-free and if they planned to use such services within the next 12 months.