The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian insurers yesterday said they have presented the Government with recommendations for solving the industry’s twin tax-related concerns without causing “disruption or confusion” in the market.

Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that the Government will respond to these proposals in two weeks’ time following Wednesday’s meeting between insurance industry representatives and a team from the Davis administration headed by Senator Michael Halkitis, minister of economic affairs.

“The meeting was held and we thank the minister and his team for hosting us, listening to our ideas and we’ll see how it pans out,” he said. “We gave our suggestions on the way forward, and they are supposed to get back to us in two weeks. We have made our suggestions on both the points we have issues with.

“We told the Government: ‘We’re all in this together. We understand you need to raise money, and these are ways you can raise money without disrupting the insurance industry and not causing confusion in the international insurance market’.” 

The meeting was held to address two specific concerns and uncertainties relating to the Government’s tax policy towards the insurance industry. One concerns the measure, unveiled in May’s Budget, to move from the 3 percent tax paid by consumers on insurance premiums to a 2.25 percent annual Business Licence fee based on an insurer’s “turnover”.

The second involves the VAT treatment of private medical claims, with the Government seeking to bring this into line with what it argues is standard global practice. This would result in consumers paying the 10 percent VAT on private health insurance claims payouts, rather than the tax being treated as an ‘input’ deduction and offset against the insurer’s output VAT.

“The medical professionals advised them accordingly, gave the Government their recommendations as to what to do, and we await to see what the Government side comes back with in two weeks,” Mr Saunders told this newspaper. He declined to comment further or go into the details of what was discussed between the industry and the Government, citing an agreement not to do so.

While the previous 3 percent levy paid by consumers on all policies was in effect eliminated on July 1 as the Budget’s tax measures became law, the absence of any implementation road map, together with a precise “definition” of what turnover means and a clear basis for calculating the new Business Licence fee, has left the entire sector - both property and casualty, as well as life and health insurers - scrambling to adjust without possessing key details.

A critical issue is the definition of “turnover” that the Government plans to apply for the purpose of calculating the Business Licence fees payable by the sector. Underwriters, in particular, are seeking clarity as to whether “gross written premium” or “net premium earned”, the latter of which strips out the sums ceded to reinsurers, will be used as the basis for the calculation or even “net underwriting income”.

The resulting uncertainty has made it impossible for the industry to plan or properly advise partners such as reinsurers. Mr Saunders said previously that while Tribune Business’ copy of the Business Licence (Amendment) Bill showed insurers as having to pay a fee equivalent to 2.25 percent of annual turnover, the draft he possesses shows that as being 2 percent.

Meanwhile Simon Wilson, the Ministry of Finance’s financial secretary, in an earlier interview affirmed to this newspaper the Government’s position that the 10 percent VAT levied on health insurance claims payments to medical providers is a service provided to the end-consumer, and thus treated as ‘output’ VAT, rather than treated as an ‘input’ by the insurance carriers and claimed as a deduction against their own tax payments.

Acknowledging that Bahamian health insurers have applied this VAT treatment since the tax was introduced in 2015, Mr Wilson said: “It’s not about trying to get money. This is not us trying to put on ordinary Bahamians an additional tax.

“This is us saying: ‘Guys, we’re not following what the law says, and the idea is: ‘Do we we need to change, do we make an adjustment?’ What do we do? I just hope to have these discussions soon.” Health insurers fear any changes that prevent them obtaining VAT deductions on claims payouts will result in increased premiums for both groups and individuals with private health insurance, increasing medical treatment costs and making coverage increasingly unaffordable.

At present, the health insurance industry can deduct, or offset, the VAT portion of patient care bills submitted to it by doctors, hospitals and other medical facilities against what it pays to the Government from the 10 percent levy imposed on client premiums.

However, the Ministry of Finance and Department of Inland Revenue want to change this treatment such that health insurers are no longer able to deduct/offset the VAT charged on their clients’ medical bills against the taxes collected on the premium.

With the industry no longer able to treat medical bill VAT as an ‘input’ deduction, it has warned that consumers will “ultimately” pay the price through having to absorb the levy on their patient care expenses - something that will effectively increase health treatment costs by 10 percent at a time when Bahamians are grappling with soaring inflation and the continuing fall-out from the ongoing COVID-pandemic.

Given that some medical costs can be substantial, reaching into the hundreds of thousands and even millions of dollars, the potential revenue boost for the Government could well be significant. Yet, if implemented, the increased cost could be just as impactful for both individuals and employees who presently enjoy private health insurance under their company’s group policy, potentially making quality healthcare less affordable and accessible when COVID-19 remains a threat.

Should the revised VAT treatment become law, insurers would likely be forced to alter their pricing while providers of medical care would need to adjust their services. The change, if implemented, could impact over 100,000 Bahamians with private health insurance.