By NEIL HARTNELL
Tribune Business Editor
Bahamian dive operators were last night “shaking in our boots” over the likely impact from Value-Added Tax (VAT), their president telling Tribune Business it would cost his firm “the lion’s share” of a segment that accounts for 80 per cent of his business.
Stuart Cove, head of Stuart Cove’s Dive Bahamas, said adding a 15 per cent VAT to consumer prices would deepen the existing gulf between local operators and their “foreign and illegal” rivals, who already enjoy a major competitive advantage.
Pointing out the Government would likely find it impossible to force these operators to levy, collect and remit VAT to it, Mr Cove said many foreign operators were evading the existing taxes levied on the sector.
Estimating that non-existent enforcement and collection efforts were costing the Government around $1 million per annum, the Association president told Tribune Business that multi-million dollar revenue sums were simply “being left on the table”.
If foreign operators were taxed on the same basis as their Bahamas-based counterparts, Mr Cove said, the Government would likely quadruple its annual tax take to $4 million.
Suggesting that the dive industry was a microcosm of the revenue leakages plaguing the Government, Mr Cove said he and other operators would lose “a lot of business” if required to charge clients a 15 per cent VAT.
Arguing that an economic impact worth “several hundred million dollars” to the Bahamian economy annually was “at risk”, Mr Cove said he would likely stop his global sales and marketing efforts that brought hundreds of visitors to this nation for diving.
“Naturally we have tremendous concerns about it, all 35 members of the Bahamas Diving Association,” Mr Cove told Tribune Business of the Government’s tax reform plans.
“That’s to put it mildly. We are all shaking in our boots just with the nature of our business.”
Linking VAT’s impending implementation to the absence of an existing ‘level playing field’ in the dive industry, Mr Cove said the problems stemmed from the Foreign Charter Yacht Act (1991 Boat Registration Act, Chapter 277).
This had been designed to attract mega yachts to base themselves in the Bahamas and run charters from this nation, developing a lucrative new market for this nation.
The Act was designed to offer a more attractive tax regime than Florida, levying a 4 per cent ‘Charter fee’ on these boats gross revenues, in comparison to a 6 per cent sales tax, plus an annual licence fee linked to vessel size.
However, Mr Cove said the regime was now “rife with people cheating”, telling these newspaper he knew of at least one operator who based their 4 per cent Charter fee on the ‘net’ - not the gross.
And, more pertinently, he suggested the Act had created
“a loophole for all dive boats out of Florida to be quasi-legal”.
While some of these boats were based in the Bahamas, most were based in West Palm Beach, Fort Lauderdale and Miami, and frequently cruised Bahamian waters, taking advantage of this nation’s natural resources, without paying a cent in taxes to the Government.
“Once they clear Customs, they use our waters and reefs, and many don’t pay any duties, work permit fees, Business Licence fees and hotel fees, and we [Bahamian operators] can’t compete with that,” Mr Cove told Tribune Business.
This, he added, handed a competitive financial advantage to foreign liveaboard dive and fishing vessels , which effectively act as floating hotels, offering rooms, food and liquor as part of a complete package.
In turn, Bahamian land-based dive operations, such as his own, are already operating at a disadvantage prior to VAT. The existing situation, Mr Cove said, was stunting growth and employment among Bahamian dive operators, and reducing revenues generated by the sector for the Government.
Mr Cove estimated that, based on the number of known foreign liveaboards operating in the Bahamas currently, the Government should be earning around $1 million per annum in revenues from these vessels now, based on a collective $12.4 million turnover.
However, noting that the reporting and payment of the 4 per cent Charter fee was voluntary, Mr Cove said he suspected the Government was receiving little to none of this amount.
“We’re giving up, roughly estimated, $1 million per year,” he told Tribune Business. “The Port Department is not the Ministry of Finance, and they’re doing a terrible job in collecting the taxes.
“We met several months ago with the Port Department to bring this to their attention. Nothing seems to have happened. This is $1 million not going to the Treasury.
“As fully Bahamian-based land operations, we’re losing business all the time, and the Government is losing tremendous revenues.”
Divers who stayed on land used hotels, restaurants and taxis, ensuring their money circulated in the Bahamian economy, while foreign operators “come to the Bahamas and leave no money because they stay on the boat.
“They’re using our waters, catching our fish, and we’d like them to pay their taxes, as we’re subsidising their boats. It’s a joke. The thing that’s really bad is all the potential tax revenue left on the table.”
Questioning whether the Bahamas needed a VAT if it could plug all the revenue leakages in industries such as the dive sector, Mr Cove told Tribune Business that if foreign liveaboard boats were taxed on the same basis as their land-based Bahamian rivals, the Government’s revenue earnings would likely increase from around $1 million per year to just over $4 million.
He explained that Stuart Cove’s Dive Bahamas had been forced to change its operational model to one more akin to a hotel.
“We go all over the world to attract people to the Bahamas at our own expense,” Mr Cove said. “Today we had people on our dock from Argentina, Brazil, a group from France, as well as Americans and Canadians.
“I just came back from Chile and Brazil to get people to come here. We have been forced to introduce packages to compete with the foreign boats coming here, and I don’t see how those boats are going to pay 15 per cent VAT.
“It’s going to be even more inequitable and unfair,” he added. “I really don’t want to be exclusionary, I want to attract more of these vessels, but I want them to pay their taxes.”
To compete with the foreign liveaboards, Mr Cove said his company had to “include everything” in the package, offering things such as five dives per day with food thrown in at the firm’s expense.
“We’re high gross, low yield,” he told Tribune Business. “If we have to add this 15 per cent VAT to our prices, we will be uncompetitive and non-competitive, and feel we will lose a lot of our business.
“A large chunk of our business is pre-booked. Eighty per cent is pre-booked; they know they’re going to dive with us before coming. With VAT, the lion’s share of that will not come.
“We have such a wonderful dive product that it’s easy to sell, but if I can’t compete, why should I spend mine, and my company’s, money to go pound the world to promote the Bahamas?” Mr Cove added.
“We are creating visitors to the Bahamas. That’s what the dive industry does. That’s in jeopardy. This is a tremendous problem for our industry. It’s several hundred million at risk.
“We go out there and beat the doors to get people here. We’re walking the pavements, shaking hands to get people to stay in the hotels, but we’ve got to stay competitive. We’re more like a hotel with its services. If it wasn’t for us, the tourists sure wouldn’t come.”
If Stuart Cove’s was forced to stop its promotional efforts, the company would be forced to rely on leisure and trainee scuba divers/snorkellers for its business.
Noting that his company employed 150 persons, Mr Cove said the likely first casualties when VAT came in would be staff. “I don’t want to do that, but I have these incredible overheads,” he added.
“I, for the life of me, don’t see how the Government is able to charge the [foreign] dive boats this VAT as they will not come to the Bahamas; they will go somewhere else.”