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10% Vat-Induced Inflation Branded 'An Exaggeration'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior Ministry of Finance official has described estimates that the proposed Value-Added Tax (VAT) would increase consumer prices by around 10 per cent as an “exaggeration”, with the Government set to imminently release its own projections.

John Rolle, the Financial Secretary, in response to comments by Anwer Sunderji, Fidelity Bank (Bahamas) chief executive, said the Ministry of Finance “would be happy to share the details in the next week about our estimates” derived from an Inter-American Development Bank (IDB) study

He promised that a date for when these estimates will be presented will be announced this week.

Mr Sunderji last week said Fidelity Bank (Bahamas) operating costs were likely to increase by a material 13 per cent, or $2.5 million, per year due to a combination of VAT and Business Licence fee increases. VAT alone would account for $1 million of that, as the banking industry’s ‘exempt’ status means it cannot claim back tax paid on its inputs.

“We believe that the already hard-pressed Bahamian consumer will see an inflationary impact from VAT of around 10 per cent,” Mr Sunderji told Tribune Business.

“Absent any increases in compensation, this will result in a cost of living increase and further stress on the consumer’s ability to discharge debt obligations. We expect to see a continued deterioration in the already sky high delinquency rate.”

Elsewhere, Mr Rolle also blasted as “recklessly incorrect” the estimate by a gated community management company’s head that VAT would result in a more than 32 per cent increase to property/home owner association fees.

James Owen, managing director of Seaview Management Services, suggested the new tax would have a ‘cascading’ effect for property owners in gated communities, with tax being paid on tax.

Taking a $150 monthly association fee as an example, Mr Owen said this would have to be increased by 15 per cent to compensate for the VAT charged to the Association by landscapers and other service providers.

This would increase the $150 fee to $172.50 and, with VAT also levied at 15 per cent on the homeowner, the total sum paid to the Property Owners Association would rise another $25.88 to a total $198.38.

This, Mr Owen said, would represent a 32.2 per cent fee increase to gated community property owners, even though the Association would be able to claim the VAT paid on its ‘inputs’ back, netting this off against what it paid to the Government.

But, refuting this, Mr Rolle told Tribune Business: “We have made it clear in all of our public presentations that VAT is not a cascading tax. Whenever it is paid by a tax registrant it is an asset, which can be claimed back as a credit from the Government.”

However, he effectively conceded that condo/gated community common area maintenance (CAM) fees would likely increase as a result of VAT. This was because, while such fees will be ‘exempt’ from VAT (meaning homeowners will not be charged the 15 per cent levy), home and property owner associations will be unable to reclaim the tax paid on their so-called inputs – goods and services bought by the community.

As a result, while home/property owner association fees will likely increase as a result of VAT, the extent of the increase will not be as great as that suggested by Mr Owen in Tribune Business on Friday. While he was correct on the general issue, Mr Rolle is saying the calculation method used was wrong.

“For home owner associations there is no proposal to make the fees VATable. Under the laws relating to condominiums, owners are legally bound to pay common maintenance expense,” Mr Rolle said.

“Where VAT will come into play is on direct expenditures of the condo association. Examples of these would include hiring of management companies, purchase of goods and services (security, landscaping, repairs, etc).

“As would be expected associations might have to adjust maintenance fees to fund these charges. This is very much similar to the manner in which any supplier of exempt products and services would operate.”

And, in a further twist, Mr Rolle said clubs “operated within or by” homeowner and property associations would attract, and be liable to pay, VAT if they exceeded the $100,000 annual turnover threshold.

“Let me be clear that dues associated with membership in clubs operated within or by condo associations would be taxable,” Mr Rolle told Tribune Business.

“In our consultations with some homeowner associations we clarified that these members clubs would be subject to the turnover thresholds for registration for VAT. If the thresholds are surpassed then the services would become taxable.

“The guidelines which ultimately accompany the VAT regulations will also speak to how VAT will be assessed if there are instances in which membership fees are embedded in homeowner dues.”

Comments

ohdrap4 6 years, 8 months ago


He promised that a date for when these estimates will be presented will be announced this week.


That is risible. Pathetic to postpone it yet again.

But Mr. Rolle, said, on the Darrold Miller show that, prices would not go up because of reduction in customs duties, ie, no markup on VAT. That is not what i hear businesses saying.

This is like fukushima. the textbook said to cool the reactor with sea water, then they prayed that no disaster ever happened. The batteries failed right away, the sea water did not cool the reactor.

The technocrats just have no idea what the inflationary impact will be. It will be like fukushima.

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The_Oracle 6 years, 8 months ago

They have no clue, because they are not business people. There is no onus on them to Balance cash flows, debt, payroll, payables, repairs and renewals, vs market forces. They need more money full stop.It has to come from Bahamians, as the foreign investors are putting their FDI elsewhere. As for more promises of information, right, when the cows come home. Very Skinny I might add.

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John 6 years, 8 months ago

Based on personal experiences, many small business people will choose to close down and do something else than endure the hardship of running a small business that, for the most part, may be unprofitable, or very small profit orientated. Government has decided to entangle the (small) businesses in so much red tape and force them to make increased payments on taxes, including national insurance, business license and property taxes. Then government is now heaping interest payments on many of these fees and so when the small business tries to adjust his prices upwards to account for these fees, he will find that he is pricing himself out of the market. Then he must also consider the additional time that is required to get in compliance with some government regulations; To get a business license requires a minimum of THREE trips to the business license office (1) to put in the application, (2) to pay for the application and (3) to collect the license certificate. This is after you meet all the other requirements, including having a service contract for garbage collection, proof that your building was treated for pests and rodents, inspection from the Ministry of Health and Environment, have national insurance paid up, among others. Then after you pay for your license you may be required to go to the property tax section and settle any outstanding claims you may have in that department. In the main time your business may come to a standstill because Customs will not allow you to import any items into the country until you have met all these requirements and get your business license. Then when you finally get to the port for your goods, they are damaged, missing (like stolen) , stale dated, or you have to pay an outrageous storage fee. Then the process starts all over again, and imagine now having to keep proper accounting records for VAT and trying to keep up with the VAT payments. Trying to take the country from an informal one for small businesses to a formal one draped in red tape and added charges will see the small business community dry up and blow away. And How could VAT not cause inflation when it will be assessed on services that was not taxed before?

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john33xyz 6 years, 8 months ago

Tribune Editor: Would you PLEASE print a front-page article once per week (like every Tuesday or something) (but same day each week) saying WHERE these regulations can be found - or stating that they are currently nowhere to be found cause they haven't been made yet.

WHERE is Mr. Rolle getting all of these little trinkets of information he is spouting out. Where is there ANY piece of paper in the Ministry relating to VAT that has the words "owners association" on it? ... that he is referencing?

Businesses need to know whether VAT will be retroactive from Jan 1st (date of licensing fee record requirements for payment of licensing in Jan 2015). Who knows this? If Mr. Rolle says "no", from what does he speak. Will his word be enough when the PM says in August that "You guys better go back through your sales books, because all dem sales gonna be tax come January 2015 for da whole year."

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john33xyz 6 years, 8 months ago

ALSO what is this $100,000 annual turn-over threshold??????? WHERE IS THAT WRITTEN?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????

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