The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Family Guardian’s president wants the duration of insurance products, rather than type, to determine their Value-Added Tax (VAT) treatment amid fears that underwriters will be forced to “eat” the tax.

Lyrone Burrows told Tribune Business that the “biggest challenge” facing Bahamian life and health insurance carriers was the way the Government proposes to treat indemnity and sickness and accident-type policies.

He explained that because these were long-term insurance products, they were sold with a “lifetime” premium that could not be adjusted.

If the Christie administration goes through with plans to make these policies VAT-able, Mr Burrows said underwriters such as Family Guardian would have little choice but to pay and absorb the 7.5 per cent levy themselves.

He expressed concern that the way such policies were structured, sold and served would change forever, with the VAT-imposed cost increase potentially forcing premium prices on other products to rise.

And Mr Burrows also told Tribune Business that the insurance industry was seeking “some form of input credits” for the 2015 first half, when all the sector’s products will be treated as VAT ‘exempt’.

This would provide some compensation for the industry’s increased costs, as they will be unable to reclaim or ‘net off’ the VAT paid on their inputs due to all products being ‘exempt’ until July 1, 2015.

“The biggest concern for us as an industry, especially on the life and health side, is the categorisation of life and health,” Mr Burrows told Tribune Business.

“The information we’ve received still leaves us in the position of trying to understand what are deemed life products, and what are deemed health products.

‘We’d like to see the definition updated to short and long-term products. Instead of identifying life and health, identify short and long-term products.”

The Government’s present position, as per the VAT Bill and regulations passed through Parliament, is that insurance products with a long-term savings element - typically life insurance and annuities - are the only ones that will be ‘exempt’ from VAT.

All other policy types, such as property and casualty, and health, will be subject to a 7.5 per cent levy added to the consumer’s premium.

This, Mr Burrows explained, would penalise sickness/accident and indemnity-type policies. Although often viewed as health products, they were long-term in nature like life insurance.

And, more importantly, their premium prices were set for life once the policy was taken out - meaning those existing pre-January 1, 2015, cannot be adjusted for VAT.

“There are some products, intended as long-term products, where the pricing cannot be adjusted after the fact,” Mr Burrows told Tribune Business. “They are sold with lifetime pricing that cannot be adjusted for the rest of the period.

“Based on the way the legislation is set up, it gives the impression those products are VAT-able.”

Arguing that it would present “a significant burden for consumers” if VAT was imposed on indemnity-type products, Mr Burrows said he saw no way in which this could be done for pre-existing policies.

As a result, insurance carriers would be “forced to eat the VAT ourselves”.

Mr Burrows said potentially “thousands and thousands and thousands of policies” would be impacted by the current VAT tax treatment plan, most of which were provided via the traditional home service route.

“It would pretty much change the method of how that business is served if we had to go the route of attaching VAT to it,” Mr Burrows told Tribune Business.

“Separate short and long-term. That is our biggest challenge, other than how the six-month transition period will be handled.”

Mr Burrows said insurers were “looking to obtain some form of input credits” for the six-month period when the entire industry will be VAT ‘exempt’, and cannot reclaim what they pay for raw materials etc.

He added that the sector wanted to “get back the additional costs we will have to carry as result of the exempt status through that period. We are confident the Government will listen to us, and they have agreed to provide us with a consultant to take us through that period prior to the time when we become fully VAT-able” on July 1.

To soften the blow for property and casualty, and health insurers, the Government has given the sector an extra six-month window until July 1 before it has to levy VAT on consumer premiums. All other sectors have to start doing so from January 1.

While the Bahamian insurance industry would prefer to be completely VAT ‘exempt’, believing this will minimise the business loss from a further increase in already-high premium prices, Tribune Business understands some sector players would prefer to be VAT-able from January 1.

They would prefer to forego the six-month ‘window’ due to the fact that ‘exempt’ status means they will be unable to recover their VAT ‘input’ tax payments, something they fear will increase their costs and place them at a competitive disadvantage.

Howard Knowles, the BIA’s head, previously confirmed this to Tribune Business, although he said such sentiments were ‘ahead of the game’.

He emphasised that the Bahamian insurance industry still wanted to be completely VAT ‘exempt’, and hoped to persuade both the Government and the consultant it had promised to bring in of this position’s merits.

Yet Mr Knowles added: “It has been stated that if we are going to be VAT-able, we would prefer to pay VAT from January rather than July, because we believe we would be at a disadvantage if we’re unable to claim back our inputs.”

The BIA chief, though, acknowledged that the Government had indicated it was too late to switch the sector’s VAT transition from July 1, 2015, to January 1.

“I wasn’t at the meeting, but from what I understand they said it was too late to be VAT-able in January,” Mr Knowles told Tribune Business. “That’s my understanding of the most recent conversation with the Ministry.”

Mr Knowles said the insurance industry’s VAT preference was to be ‘zero rated’ where it could recover its input tax payments and not levy a 7.5 per cent charge on consumers, but this was never going to be accommodated by the Government.