The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Freeport has mistakenly interpreted comments by the Grand Bahama Port Authority’s (GBPA) chairman and president into believing it has “dodged the bullet on VAT”, something the private sector says is incorrect.

The Grand Bahama Chamber of Commerce, in its report on Value-Added Tax (VAT), warns that many residents and businesses have “misconstrued” comments by Sir Jack Hayward and Ian Rolle, as questions over the tax’s potential impact on Freeport’s services industries remain unanswered.

The report, which was submitted to Prime Minister Perry Christie last month, says the draft VAT legislation, regulations and guidance notes are silent on whether the 15 per cent VAT will be assessed on ‘services’ supplied from one Port Authority licensee to another.

And the Chamber, in a document obtained by Tribune Business, also warned that the Government had yet to clarify whether licensees have to pay VAT at the border on ‘bonded’ goods imports.

Such goods are currently imported duty-free, and the current practice among Port Authority licensees is that they post-pay duty on sales to non-licensees to Customs by the 15th of the following month, together with an accompanying report detailing all these transactions.

But, as detailed in the Chamber report, the VAT legislation and regulations are silent as to whether such a system will be allowed to operate in Freeport in relation to the new tax.

Several licensees have already privately voiced concerns to Tribune Business that they might have to pay 15 per cent VAT ‘at the border’ on all imports, and then claim it back from the Government on all ‘bonded’ sales to fellow GBPA licensees.

This has potential major cash flow implications for them, especially given the uncertainty over whether the Government will be able to facilitate timely refunds.

In its report, the Grand Bahama Chamber said Mr Rolle’s comments that Freeport would ‘have an advantage’ under VAT were, in part, supported by the Government’s ‘White Paper’ and draft legislation. Sir Jack had made similar remarks towards the end of 2013.

However, while the White Paper appeared to promise that VAT would be consistent with the Hawksbill Creek Agreement’s ‘bonded goods’ regime, the Chamber warned there were key issues still requiring clarification.

“What is unclear is whether or not the Government’s stated position (VAT for GBPA licensees will be treated the same was as duty is currently treated) will also apply to the provision of ‘services’ between licensees, since the assessment of Customs duty is only relevant to ‘goods’ and cannot be applied to services,” the Chamber said.

“Hence a precedent for the treatment of taxes in the area of services does not exist. Based on our interpretation of the Hawksbill Creek Agreement, we believe that since VAT is clearly a tax, the aforementioned services should be exempt from VAT.”

And it added: “Another area where clarification is sought is whether or not VAT will be assessed at the border against bonded and duty-paid imported goods by GBPA wholesaler and retailer licensees.”

Putting these issues in the context of the public comments by Sir Jack and Mr Rolle, the Grand Bahama Chamber said: “The comments by the GBPA’s chairman and president have been construed by many Freeport residents and households to mean that Freeport has effectively dodged the bullet on VAT, which is not the case.”

To remedy this, the Chamber urged the Government and its consultants to “disabuse Freeport dwellers of this misconception, as their failure to prepare for the inflationary effects of VAT could even further exacerbate an already-stretched social welfare safety net.”

The Chamber’s report also called on the Christie administration to “clarify its position on VAT” when it came to the tax treatment of Freeport, and “whether or not the ‘collect and remit’ system currently being used by merchants in Freeport in connection with imported bonded goods, will be adopted for VAT purposes, thereby avoiding the need for VAT to be assessed at the border for such goods”.

The Grand Bahama Chamber also focused on the 1 per cent Customs administrative processing fee, noting that its introduction in Freeport had “adversely impacted the profitability” of many Port licensees that relied on Freeport’s duty-free and other tax concessions.

This issue is set to become the subject of a Judicial Review challenge in the Supreme Court, and the Chamber called on the Government to “immediately cease and desist” levying the 1 per cent fee and refund/provide credits for monies it had previously taken.

“The latest incursion on the Hawksbill Creek Agreement by the Government, as well as the uncertainty surrounding the extension of the property tax and Business Licence fee concessions included therein, which are due to expire in August 2015, continues to erode licensee/investor confidence,” the report warned, “since they perceive that the tax-free benefits enshrined in the Hawksbill Creek Agreement are consistently being chipped away or unilaterally being amended to extract greater tax revenues from their respective businesses.

“Accordingly, a number of these investor/licensees have shelved expansion plans, downsize their operations and, in a few cases, even exited the jurisdiction.”