The Tribune

• Calls for 45 cents per gallon ceiling to ‘ease the pain’

• Abaco proposal supported by other island Chambers

• Treasury ‘won’t lose; it’s just not getting any windfall’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Abaco’s Chamber of Commerce president yesterday urged the Government to “cap” the VAT it earns from taxing gasoline at 45 cents per gallon and “alleviate the pain” of soaring fuel costs.

Ken Hutton told Tribune Business his proposal, which had received backing from other Family Island Chambers, was likely the only short-term measure The Bahamas could take to ease the impact of near-record oil prices which could yet surge higher after the Biden administration banned all Russian energy imports from the US in response to the Ukraine invasion.

While the “cap”, if implemented, would deprive the Public Treasury of a potential revenue “windfall” from higher gas prices, he argued that the Government would not “lose any money” while helping to mitigate some of the negative impact on hard-pressed Bahamian households and businesses still struggling to recover from COVID-19’s economic devastation.

“With the ever-increasing cost of inflation, the Abaco Chamber would like to recommend to government a cap be placed on VAT for gasoline and diesel,” Mr Hutton told this newspaper. “As fuel prices go up, so does VAT, so we would like to recommend a cap of 45 cents per gallon.

“This would apply to import VAT as well. Government is not losing any money; they are just not getting a windfall on top of inflationary pressures. Family Island Chambers are also in favour.” Mr Hutton identified those Chambers as the ones from Exuma and Eleuthera, in particular, although he “hadn’t heard anything” from the parent Chamber in Nassau yet.

“I don’t think that is unreasonable with the way VAT is,” he added of the “cap” proposal. “It’s based on a percentage, and the higher the gas price goes, the higher the VAT amount becomes. I don’t think it’s an unreasonable thing right now, certainly in terms of fuel. We’re proposing a ceiling of 45 cents per gallon. It’s at least worth a shot.

“Who pays for it [rising gas prices]? It’s the economy. Consumers are the ones that can least afford it in terms of fuel. It’s one of the greatest direct costs for households apart from food. I took a picture on Saturday when I got some gas and it was $5.93 a gallon. And this is just at the start of this, this global crisis.”

Tribune Business reported previously that one of the few beneficiaries from the surge in global oil prices and, indeed, all current inflationary pressures, is the Public Treasury. Given that VAT and import/Excise duties are levied as a percentage on the landed cost of imports, the across-the-board increase in prices could spark a revenue windfall for the Government unless consumers cut-back.

Vasco Bastian, the Bahamas Petroleum Dealers Association’s (BPDA) vice-president, yesterday confirmed to this newspaper that the Government is currently earning $1.54 per gallon of gasoline when it is sold to end-users. That means, based on current retail prices, that between 25 percent and 30 percent of each gallon of gasoline sold goes to the Public Treasury.

Petroleum products are thought to be the largest VAT-generator for the Government. Sir Franklyn Wilson, chairman of FOCOL Holdings, the Shell distributor, told Tribune Business that the industry’s tax contribution was “very substantial”, although he declined to provide a figure, and added: “That’s the way it is. That’s the reality of the tax system.”

Thus while reducing, or capping, the Government’s fuel tax take remains the only short-term option for The Bahamas to mitigate the impact of volatile global oil prices, the Davis administration will have to balance any such action with its need for revenue given the ongoing fiscal crisis that the country faces.

However, Mr Hutton argued that, given “so much is out of our control, a “cap” would be best for striking the balance between mitigating the increase in global oil prices - which have risen 30 percent in less than 20 days - “without adversely affecting the Government’s fiscal status”.

“We’re not asking for it to be waived; we’re asking for it to be capped,” the Abaco Chamber president said. “We have zero say on the price of oil, but I think we can help people here mitigate the fall-out from the price going up. Everyone is concerned as is everyone else in the world.”

Asked whether he feared rising gasoline and energy costs, stemming from Russia’s Ukraine invasion, will derail Abaco’s post-Dorian rebuild and COVID recovery, Mr Hutton added: “None of it is helpful, put it that way. It’s not helpful at all.”

He said he decided to make the “cap” proposal public, after obtaining support from other island Chambers, because “we’ve not been getting a response from government on any issues recently”.

Mr Hutton explained: “In Abaco, we’re waiting for clarity on the Special Economic Recovery Zone issue. We thought that had been extended from January, but then were told that there are changes to it that are coming at the end of March. No one can give us any clarification. We have reached out to numerous government officials and nobody is responding to us.”

Thomas Sands, the Eleuthera Chamber of Commerce’s president, yesterday described soaring oil prices and the Ukraine conflict as “a bump in the road we do not need” with his island and the rest of The Bahamas still struggling to rebound from COVID’s ravages.

“The rising costs across the board have everybody concerned, and the reality is that we’re trying to recover from a really bad time in the economy,” he told this newspaper of Mr Hutton’s “cap” proposal. “Whatever can be done to alleviate the pain or keep it in line is worth exploring; it’s definitely worth exploring.

“I think the economy was beginning to improve, and there’s a lot of promise for Eleuthera and a lot of things are going to happen. The reality of increased costs at any level makes that journey even harder at this particular point in time. People are just trying to recover, just trying to catch themselves with hope for the future and here’s another one [Russia/Ukraine].”

Still, Mr Sands said Eleuthera’s economy and society were awaiting the go-ahead for Disney’s Lighthouse Point cruise port. “We’re really hopeful for that. There’s a lot of promise and a lot of hope,” he added. “We’re almost there..... Nobody knows what the end result will be, but everybody is projecting that the recovery will be strong and that we will get through this.”

Acknowledging that inflation’s impact will be greater in the Family Islands than Nassau, the Eleuthera Chamber chief added: “The cost of imports, the cost of moving product what have you, it’s going to be more severe in the Family Islands and, in turn, we would have less economic activity.

“We have a combination of higher costs and less activity, but hopefully our saving grace is we will have some activity and start to grow. Besides Disney, the Government has recently signed revised Heads of Agreement with Sir Franklyn Wilson’s Jack’s Bay project and the nearby development headed by Colombian billionaire, Luis Carlos Sarmiento.