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'Huge Change' To Vat On Tourism

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s decision not to levy Value-Added Tax (VAT) on gross overseas sales and gratuities was yesterday branded “a huge change” that will ensure tourists are not directed away from the Bahamas.

Stuart Bowe, the Bahamas Hotel and Tourism Association’s (BHTA) president, told Tribune Business that despite the Government modifying its tax reform plans in several key areas, five issues still concerned the industry.

These include plans to treat casino gaming as VAT ‘exempt’; the intention to levy the 7.5 per cent tax on Promotion Board levies and complimentary rooms; the end to Grand Bahama’s 5 per cent concessionary room tax rate; and the Government’s ability to enforce a ‘level playing field’ between foreign and Bahamian dive/charter boat operators.

Still, Mr Bowe, responding to Tribune Business’s questions, said the Government had altered its VAT plans in several areas vital to the hotel and tourism industry’s competitiveness.

In particular, VAT will no longer be charged on top of gratuities as long as the full amount goes to the employee, while the 7.5 per cent levy will not be imposed on gross overseas sales.

Now, VAT will only be assessed on the net revenue from overseas sales received by Bahamian businesses .

Both moves are designed to eliminate VAT acting as a ‘tax upon a tax’, as it would have fallen on top of overseas travel agents/wholesalers commissions, and employee gratuities, respectively.

Speaking to the changed approach towards overseas sales, Mr Bowe told Tribune Business: “This was a huge change that would have resulted in overseas wholesalers, tour operators, travel agencies and online travel agencies steering business away from the Bahamas.”

The BHTA, in an August 11 presentation, warned that the Government’s plan to levy VAT on gross overseas sales was “unprecedented practice for the travel industry”, as this would see the 7.5 per cent charge applied to air fares and commission to foreign travel agents and wholesalers.

Arguing that this would be “difficult to impossible to track”, the BHTA said such treatment would reduce sales and cause a “huge price increase for travel to the Bahamas. It would also discourage overseas sales, with most foreign wholesalers unlikely to share information on their mark-ups.

“VAT should only be applied to the revenue received by hotels and other Bahamas-domiciled tourism related businesses, as this is their legal entitlement to revenues,” the BHTA said.

This the Government has now agreed to, and it has also adopted the private sector’s recommendations on gratuities.

The BHTA’s August presentation warned: “With all-inclusive pricing, factored on top of 15 per cent gratuity, [VAT] creates confusion and an indefensible position to customers.”

The consequences of levying 7.5 per cent VAT on top of gratuities were increased consumer costs, “adverse public relations implications for the Bahamas, and a reduction in gratuities and employee earnings”.

And the Government has also moved to address VAT on the ‘domestic air travel’ portion of a tourist’s plane ticket.

The BHTA wants no VAT on the domestic leg of international air bookings, and said the Ministry of Finance was looking at adjust its policy to provide an exception when the ticket is part of ‘continuous travel’.

There will also be some consideration for overnight stay in Nassau when travelling to and from the Family Islands, due to flight schedules.

Yet while these changes have further “lessened” VAT’s impact, and helped the industry to maintain price competitiveness, Mr Bowe identified several areas that need further attention.

In particular, with casino gaming VAT ‘exempt’, these facilities are unable to regain or ‘net off’ their input tax payments.

Casinos “can only claim an input credit for ‘shared’ expenses tied to the hotel portion of their operation”, Mr Bowe added. “The industry is seeking some measure of offsets for inputs.”

The BHTA president told Tribune Business further: “There are several key issues that remain. First is the assessment of VAT on Promotion Board levies. The Promotion Board levies are used to market the Bahamas and generate revenue for the industry and Government.

“Second, it is proposed that VAT is charged on the market value of donated rooms and services for charities, press trips and promotional visits by travel agents and similar individuals. These complimentary services are intended to meet community needs and generate goodwill.

“In addition, our industry works closely with the Ministry of Tourism to provide complimentary rooms for promotional purposes. We already incur significant costs to support these efforts and do not want VAT added to the expenditure.”

Mr Bowe told Tribune Business that VAT also threatened to cut across the concessionary tax rate enjoyed by Grand Bahama’s hotels.

“BHTA maintains that Grand Bahama hotels, which have been eligible to assess a 5 per cent room tax since 2012 as part of a five-year targeted stimulus package, should be permitted to assess the same 5 per cent on the room portion of their VAT, versus the planned increase of 7.5 per cent,” he said

“Their price advantage will be eroded with this increase due to the broadening of the tax footprint for all hotels. Food, beverages, and other services which were previously not taxed on the end user will be.”

And, while the Government was aware of the problem, Mr Bowe added: “The BHTA has conveyed concern to the Ministry about the treatment of foreign charter boat and dive operators.

“Domestic operators are disadvantaged, paying considerably higher taxes than the 4 per cent, which is supposed to be assessed against foreign operators who contribute significantly less to the local economy.

“Presently, there is a need for greater enforcement as well on the collection of the 4 per cent. BHTA is calling for parity and equal enforcement.”

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