The Tribune

By FAY SIMMONS

Tribune Business Reporter

jsimmons@tribunemedia.net

A Cabinet minister yesterday said the Government had “a very fruitful exchange” with food merchants to address the challenges posed by eliminating VAT on uncooked foods while pledging that Bahamians will see relief from the April 1 target date as promised.

Michael Halkitis, minister of economic affairs, acknowledged the industry’s “bottom line concerns” over the decision to treat the VAT elimination as ‘exempt’, rather than ‘zero rated’, but said the Government’s priority is to ease inflationary and cost of living pressures that continue to hurt Bahamian families.

“We spoke about some of the challenges with the elimination of VAT on unprepared food, which goes into effect April 1,” he said. “We walked away confident that everyone will be ready to make the change, and we agreed to continue discussions so that any administrative difficulties they anticipate can be worked through together.”

The Government last year reduced VAT on unprepared food from 10 percent to 5 percent, and the rate will fall to zero at the start of April. Mr Halkitis said the shift to zero presents unique accounting adjustments for retailers.

“It previously went from 12 percent to 10 percent, then from 10 percent to 5 percent, and now from 5 percent to zero,” he explained. “Because of that, there are some back-office accounting and administrative procedures they have to adjust to properly account for it.”

Mr Halkitis added that moving from 5 percent to zero differs from previous rate changes because there will be no VAT payable, requiring modifications to bookkeeping and accounting systems. “It’s a little different going from 10 percent to 5 percent than going from five to zero,” he said. 

Grocery retailers have raised concerns about the potential financial impact, highlighting that the Government’s decision to treat the elimination of VAT on uncooked foods as ‘exempt’ rather than ‘zero rated’ has added fresh complexity to their monthly and quarterly VAT filings by creating a new and separate category of goods they will have to break-out and account for in their submissions to the Department of Inland Revenue (DIR).

Mr Halkitis acknowledged that grocery retailers have “some bottom line concerns”. However, he argued the move is aimed at addressing the cost of living affecting consumers globally. “The cost of living is at the forefront of people’s minds. Surveys show that people around the world see it as their number one issue,” said Mr Halkitis.

“To tackle it requires government and the private sector. If there is the potential for a little bit of an impact to the bottom line, people understand that this is one of those situations where we are looking to bring relief, and it is a shared responsibility.”

Tribune Business exclusively revealed last week how Super Value had warned it could incur extra costs of between $300,000 to $400,000 per month, or around $3.6m to $4.8m per year, as a result of the Government’s decision to treat the uncooked food VAT elimination as ‘exempt’ rather than ‘zero rated’.

While the latter treatment would have eradicated VAT at all stages of the supply chain, using the ‘exempt’ approach would mean only the consumer, or end purchaser, is not charged this tax. VAT will still apply at all levels in the supply chain, and ‘exempt’ treatment means businesses such as grocery retailers and wholesalers would have been unable to recover the tax paid on their input expenses associated with purchasing uncooked foods.

For example, if uncooked foods account for 60 percent of a merchant’s sales, it would have been unable to reclaim or recover 60 percent of the VAT paid on its light bill, store rents and maintenance expenses. As a result, operating costs will rise, and retailers had warned they may have to increase prices to offset the impact, thereby negating the impact of the uncooked food VAT elimination.

Merchants had also warned that introducing VAT ‘exempt’ treatment would make the tax much more complex to administer, increasing costs and time involved with this, and raising concerns they may miss filing deadlines and provide inaccurate return submissions. This was because they now have to correctly categorise products into those that are VAT ‘exempt’, ‘zero rated’, or taxed at 5 percent or 10 percent.

Debra Symonette, Super Value’s president, confirmed that Super Value had calculated “the impact could be up to $300,000-$400,000 per month” from the VAT ‘exempt’ switch through lost or reduced profits, which translates into between $3.6m to $4.8m per year.

BISX-listed AML Foods, too, in its recent 2026 third quarter results filing, said: “Recently our industry was informed of a change in the treatment of VAT inputs, which is expected to increase our non-payroll expenses and impact our cost of goods by several percentage points. We are reviewing how we will address these changes ahead of its April 1, 2026, implementation.”

Another major grocery merchant, speaking on condition of anonymity, echoed Ms Symonette’s fears and estimated that the VAT ‘exempt’ treatment could increase non-staff costs by 7-8 percent from April 1, 2026. They added that the impact will not be confined just to food stores, but all businesses that sell uncooked food, including gas stations and pharmacies.

And wholesalers will also be impacted as they will have to adopt the VAT ‘exempt’ treatment on the uncooked food supplied to retailers. Tribune Business was told that, if wholesalers elect to pass on the extra costs incurred from being unable to reclaim VAT on input expenses related to uncooked food, the cost of goods will likely rise by a further 2-3 percent.

A retailer, speaking on condition of anonymity, added that the VAT ‘exempt’ treatment will further increase the cost and complexity for food stores when it comes to administering the tax and remitting the correct returns and sums to the Ministry of Finance. And financial observers warned that, as opposed to “eating” the increased VAT-related costs, food stores will simply “mark-up” and increase prices on items that are not price controlled to maintain their margins.