The Tribune

• ‘No it won’t’, argues Minister Halkitis 

• Foreign yacht charter tax rate to triple

• Sector gets ‘windfall at our expense’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Association of Bahamas Marinas (ABM) president yesterday warned that reforms set to more than triple the tax rate imposed on foreign yacht charters will “kill” an industry that last year directly injected $122m into the economy.

Peter Maury told Tribune Business of the Government’s plans to require foreign yacht charters to register for VAT, and pay the 10 percent levy on the full charter contract: “If they want to drive business out of the country this is a good way to do it.”

Foreign yacht charters are already supposed to pay a fee equivalent to 4 percent of the contract value to the Port Department. However, reforms to the Boat Registration (Yacht) (Amendment) Rules 2022, which were tabled in the House of Assembly on Wednesday, effectively now subject the industry to ‘double taxation’ by levying 10 percent VAT on the same contract.

This more than triples the tax rate for yacht charters, taking it from 4 percent to 14 percent, and Mr Maury said such a hike threatens to undo the increased boating/yachting market share that The Bahamas has enjoyed since the start of the COVID-19 pandemic.

Warning that the Government’s will “drive them right back to the Caribbean”, the ABM chief told this newspaper that combined data from 55 Bahamas-based marinas showed that the sector accounted for 37.3 percent - or more than one-third - of total tourism revenues generated in 2021.

Mr Maury based this on the total $327.438m total revenue generated by Bahamian tourism in 2021 - a statistic that he said came from the Ministry of Tourism. Asserting that it showed the marina sector had “made huge strides” in efforts to bring more boats and yachts to The Bahamas, and create jobs and entrepreneurial opportunities for locals, he argued that it could all go to waste due to what he described as a tax grab by the Ministry of Finance.  

However, his concerns were vehemently rejected by Senator Michael Halkitis, minister of economic affairs, who yesterday argued that the foreign yacht charter industry had for years “enjoyed a windfall at The Bahamas’ expense” by using this country’s marine environment and natural resources to earn millions of dollars without paying its fair share to the Public Treasury.

Dismissing arguments that the VAT hike on foreign yacht charters is too onerous, Mr Halkitis chuckled at suggestions the move would “kill” the sector when addressing the weekly press briefing given by the Prime Minister’s Office. He recalled how private pilots had threatened to abandon The Bahamas, and instead travel to destinations such as Turks & Caicos, when the Government introduced a $50 fee for Customs processing of private planes.

Asserting that the reverse happened, and private aviation business had actually increased since, the minister said the Government had for years struggled to collect due taxes from foreign yacht charters via the 4 percent fee. “In terms of the yacht charters, that’s been a vexing problem as well,” Mr Halkitis said. “There is a 4 percent fee on the charter.

“They charge a fee to do the charter, and the Government is supposed to get a 4 percent charter fee. What we’re saying now is that these individuals have to register for VAT and we get VAT on the cost of the charter. Because the yachts are coming into our waters, they’re enjoying our environment, they’re making money, we feel justified in earning something from that. It’s our resources that are being used generate this money, so we think we should get something for it.

“The Government of The Bahamas has to expense money to make sure our waters are in good order” through the presence of the Royal Bahamas Police Force and Royal Bahamas Defence Force, Mr Halkitis added, so that visitors and Bahamians felt safe.

“We don’t think it’s onerous,” Mr Halkitis added of the 10 percent VAT levy. “We did some checks and found, for example, that if you do a charter in the Mediterranean the VAT is 22 percent and we’re charging 10 percent. We don’t think that will chase anybody away.”

Almost anticipating Mr Maury’s response, the minister recalled the previous furore over the $50 private aviation processing fee and the failure of ‘doom and gloom’ predictions to become reality. “People say: ‘Ok, if you do this, it’s going to kill the charter industry’, right?

“We don’t think so. As a matter of fact we think, and I say it here, individuals have been having a windfall for a long time at our expense and we feel it’s time we get what we think is our fair share. We have a a beautiful environment, and have to preserve it and maintain it. Anywhere else in the world you have to pay. Give us our little thing.” Research by this newspaper showed the VAT rate on charter fees in Greece and Spain are 24 percent and 22 percent, respectively.

However, Mr Maury yesterday argued that the Mediterranean VAT charter rate was actually 17 percent. He added that, when this was imposed, many countries in that region “lost half their business” to Croatia. The ABM chief also asserted that it was misleading and inappropriate to compare The Bahamas to the Mediterranean, given the distance between the two, and because this nation’s real competition is the Caribbean.

“The rest of the Caribbean is at zero,” Mr Maury argued, comparing the region with The Bahamas’ new tax rate. He said Ministry of Finance officials have confronted him with the Mediterranean tax rates across successive administrations to justify hiking taxes on foreign yacht charters here, while also arguing that fuel and other costs make it prohibitive for vessels to seek out other jurisdictions - positions which he says are flawed and risk The Bahamas’ business. 

“That’s going to kill us,” Mr Maury told Tribune Business of 10 percent VAT. “That puts us in a whole different world. I see why they don’t bother to tell anyone. If they had to debate it beforehand, everybody would go berserk. They know it’s going to cause uproar. This is not good news. I think it’s going to really damage the industry. We’ve got Bahamian companies that are just starting up as agents and brokers. We started a whole new Bahamas Yacht Brokers Association.

“I’ve said it before, and I said it the last time they did this. The rest of the Caribbean is at zero. Nobody else is doing it. If you want to drive business out of the country this is a good way to do it. It’s the Ministry of Finance. I’ve been through this with the last financial secretary [Marlon Johnson] and this one. They’re just trying to create money. They’re not looking at the industry as a whole.”

Pointing to the ABM’s 55-strong marina research, which suggested the sector contributed 37.3 percent or $122.135m of The Bahamas’ $327.438m total tourism revenues in 2021, Mr Maury produce figures showing those facilities generated $78.058m in combined fuel sales last year, and $18.109m and $10.819m, respectively, in total electricity and water sales to berthed vessels. The VAT paid on this sum, at 12 percent, worked out to $18.322m.

While the $327.438m figure, said to have come from the Ministry of Tourism, could not be verified by this newspaper, Mr Maury said the marina sector’s earnings and economic contribution are under threat if the tax hike deters foreign charters from coming to The Bahamas. The boating/yachting sector’s clients are typically high-yielding spenders whose impact the industry can spread around to the entire Bahamas, not just Nassau, thus more evenly distributing wealth.

Questioning whether the Advance Provisioning Allowance (APA), which allows charter vessels to stock up on supplies prior to clients arriving, will be included in the VAT calculation, Mr Maury said the impact of visitor and crew spending was felt across the Bahamian economy by hotels, restaurants, casinos, liquor and grocery stores and other sectors.

“I saw the excursion businesses coming out and saying they’re happy seeing the yachts having to pay 10 percent VAT. We raised, in 4 percent fees in one year, $3.5m for the Government through our own online portal. Through proper collection we can get more,” Mr Maury said. “Why hit them with another fee?

“We’ve made huge strides in the last couple of years bringing this industry to The Bahamas, and creating a lot of Bahamian employment. If the Government is worried about excursions, they have to think about the 10,000 Bahamians working in the yacht and marina industry. I guarantee it’s a lot more than excursions. If you look at what we did last year, it was the biggest jump in the growth of the industry The Bahamas has ever seen. I’ve been in this industry 30 years and never seen that.”

Noting that opportunities ranged from boat and carpet cleaners to Bahamians who have set up their own yacht brokerage and agency businesses, Mr Maury said many of these possibilities were “not here five years ago”. Such livelihoods, he added, could now be threatened as well as the Government’s existing revenues from marina fuel sales.

“We have got a letter from the International Yacht Brokers Association saying that because everybody is so focused on ridiculous fees, the Caribbean is suddenly going to look better,” the ABM chief revealed. “The Caribbean probably leads the industry in this region. We have a one-third share. For every yacht that comes to The Bahamas and charters, two yachts go to the Caribbean.

“We’ve been able to claw that back in the last couple of years with hurricanes and the pandemic, and we opened up our borders first, but if we do this it will drive them right back to the Caribbean. I don’t care what economic model you’re looking at. Ten percent of nothing is still nothing.”

Mr Maury said he had previously explained to the Ministry of Finance that boats/yachts did have a choice of going elsewhere in the Caribbean if The Bahamas raised taxes. Officials had argued that fuel and other prohibitive costs would deter vessels from heading south, but the ABM chief explained this was incorrect. He said vessels burned fuel as much when they were docked as they did when sailing to other destinations, meaning they incur no extra cost going to the Caribbean.

“It’s like the cost of tea in China. It means nothing to us in The Bahamas,” Mr Maury said of the Mediterranean comparison. He added that the VAT imposition was also especially badly timed with multiple marinas, including Hurricane Hole on Paradise Island and Nassau Harbour opening up, together with new facilities in Abaco (three), Harbour Island and Eleuthera. “How are they going to fill those slips?” the ABM chief asked.

He also fears the bureaucracy and red tape involved in becoming a VAT registrant, and opening a Bahamas-based bank account, will deter many foreign charters from even trying to work with the new law. Presently, while vessels can pay their charter fee online, they have to wait two weeks to get the annual licence and have to visit the Port Department in-person to collect it.

And, with its Click2Clear system requiring visitors to answer 340 questions to enter The Bahamas, Mr Maury said Customs was not much better. He recalled how, on Wednesday, a vessel needing to leave The Bahamas at a certain time so it could connect with a tow when it reached the US was delayed by three hours waiting for Customs to clear its departure, with the agency subsequently charging the boat for overtime.

It is unclear when the new VAT registration and levy take effect. Given that they have been introduced as “rules”, it is possible they only had to be tabled in the House of Assembly - as happened on Wednesday - to come into force rather than wait for all Budget legislation to be passed and come into being on July 1.