The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian renewable energy providers yesterday warned of “significant harmful effects” if the sector is subject to 15 per cent Value-Added Tax (VAT), adding that it would undermine a key aspect of government policy.

Philip Holdom, of Alternative Power Supply (Bahamas), told Tribune Business that it “seems strange” that the Government is pushing for more Bahamian businesses and households to adopt renewable energy when VAT threatens to raise consumer costs by 15 per cent.

While the industry has received no official word from the Government, neither it nor its products have been included among those listed as VAT ‘exempt’ in the draft November Bill and regulations.

Guilden Gilbert, the Bahamas Renewable Energy Association’s president, told this newspaper yesterday that most renewable energy-related products, and those linked to energy efficiency, currently entered the Bahamas duty-free.

While this is likely to remain unchanged, he explained that the industry was “concerned’ about the potential increases in consumer prices if it was ‘VAT-able’.

And Mr Gilbert suggested that one reason the Government has yet to consult the Association on VAT may be because the latter is still waiting for the Attorney General’s Office to approve its incorporation documents, having applied to be licensed as a non-profit organisation almost a year ago.

“I would hope that in the Government’s efforts to move towards energy efficiency and reduced reliance on oil, it might look at renewable energy as a case to exempt,” Mr Gilbert told Tribune Business.

“For the most part, renewable energy components and products are duty-free. Effectively, instead of being duty-free, you’d have to pay 15 per cent on the landed cost. You’re potentially looking at a 15 per cent increase in the cost of products.”

He added that products such as solar panels, solar water heaters, inverters, rechargeable batteries and LED lights were currently imported duty-free, a situation VAT threatens to change.

Mr Holdom, for his part, said: “We obviously assume that since it’s not exempt, it [VAT] will increase our costs to the consumer by 15 per cent.

“It seems strange that on one hand they make it duty-free, and on the other add 15 per cent VAT. That’s not exactly promoting renewable energy.”

Mr Holdom said his business was advising clients to purchase their renewable energy systems before the July 1 implementation deadline, adding: “I’d be interested to know what the Government’s position is.”

The Government has gone on record as saying that it wants 30 per cent of the Bahamas’ energy needs to be met by renewable energy come 2030, with 10 per cent of that produced by households and businesses alone. VAT policy, real or imagined, could threaten that goal.

Rather than VAT, he suggested that the Government instead implement a 10 per cent duty rate on solar and all renewable energy equipment at the border, due to the accounting difficulties presented by the new tax.

“The net effect is that prices will go up, the return on investment will go down and the pay back period will go up. It makes it less attractive; it’s about a financing decision,” Mr Holdom told Tribune Business of VAT’s likely impact on the Bahamian renewable energy industry.

“It costs 15 per cent more. Every time costs go up they have to be passed on to the consumer, as companies can’t absorb it in their margins.”

He added: “We are definitely not supporting VAT as a company. We’d like to see the Government tighten their own belt before they start introducing new taxes. Get your own house in order.

“We are opposed to VAT, and it’s going to have a significant harmful effect on renewable energy in this country just when the last two governments were doing well to facilitate it.”

Mr Gilbert, meanwhile, said the Association had heard nothing from the Government about how it planned to treat renewable energy under VAT.

But, given that the Christie administration plans to levy VAT on electricity bills beyond a certain consumption threshold, Mr Gilbert added: “I think we are concerned. It is not something we’ve really discussed at length as an Association, but it’s definitely a topic on our agenda.”

Calling for the Government to clarify its VAT position on the industry, Mr Gilbert added: “The Government says they want to move to renewables in this market, to entice people.

“Are they going to keep the cost down on renewables. I would love to hear the Government’s position.

“I think it would be a very difficult position for the Government to make if they say they want to advance renewables in the country, but at the same time tack VAT on and drive the costs up by 15 per cent.”

The Association president added that a potential VAT ‘saving grace’ for the industry was that many providers may fall below the annual $100,000 turnover threshold at which they must register to pay VAT.

This was because the Bahamian renewable energy market is still developing, with demand still inconsistent, and below $100,000 providers will not have to charge consumers VAT.

“Renewable energy is still very much in its infancy, and any investment in a company in this market is going to be a medium to long-term thing,” Mr Gilbert said.

“You definitely wouldn’t enter this industry looking for a short-term profit, because the demand has not reached that point yet.”

Still, Mr Gilbert acknowledged that just two-four projects per year could push renewable energy companies above the VAT registration threshold.

He added that renewable energy provider margins were still “relatively thin”.