By NEIL HARTNELL
Tribune Business Editor
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.”