The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government last night appeared to be on course for another collision with Freeport’s business community over its plan to levy Value-Added Tax (VAT) on services transactions between Grand Bahama Port Authority (GBPA) licensees.

The VAT guidance notes, issued by the Ministry of Finance’s VAT Department late on Sunday night, state a position that both contradicts that taken by the Grand Bahama Chamber of Commerce and is “inconsistent” with both the Hawksbill Creek Agreement and the new tax’s treatment of goods.

Buried deep in the ‘guidance note’ for Freeport and the Hawksbill Creek Agreement, the Ministry of Finance confirms that services supplied from one GBPA licensee to another will be subject to the 7.5 per cent VAT levy.

“Services provided by a Port licensee are subject to the general VAT rules, and therefore services provided by one Port licensee to another Port licensee will be subject to VAT unless they are exempt from VAT in accordance with second schedule of the VAT Bill (for example, certain financial and insurance services),” the guidance note states.

This directly contradicts the February 2014 position paper submitted to the Government by the Grand Bahama Chamber of Commerce, which argued that levying VAT on services transactions between GBPA licensees would effectively breach the Hawksbill Creek Agreement.

The Chamber had called then for the Government to clarify whether VAT would be applied to these transactions, and it appears they have now been given a ‘negative’ answer.

“What is unclear is whether or not the Government’s stated position 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 had written then.

“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.”

Carey Leonard, the Callenders & Co attorney, agreed with Tribune Business that the Government’s position on ‘business-to-business’ services transactions, as set out in the ‘guidance notes’, put it odds with Freeport’s private sector and business community.

While he had yet to study the issue from a legal perspective, Mr Leonard said he believed levying VAT on these transactions violated the Hawksbill Creek Agreement’s provisions.

“My gut tells me they probably shouldn’t be taxing VAT on services between licensees, but I need to take a look at it,” Mr Leonard told Tribune Business.

He added that the Government had quietly removed services transactions between GBPA licensees from the list of those that would not be subject to VAT in the latest Bill. The November 2013 version, in contrast, had stated that the new tax would not be levied upon them.

K P Turnquest, the Opposition’s finance spokesman, agreed with Mr Leonard by telling Tribune Business that the Government’s proposal was “inconsistent with the spirit of the Hawksbill Creek Agreement”.

Arguing that applying VAT to GBPA licensee service transactions could only have a negative impact on Freeport’s economy, Mr Turnquest said: “I would have to think this is inconsistent with the Hawksbill Creek Agreement, because it speaks to no new taxes. This is certainly another tax.

“It’s another transaction-type tax that, like Stamp Duty, all beneficiaries of the Hawksbill Creek Agreement are not subject to.”

He added: “We’re a struggling economy, and to the extent there is any additional burden and increase in the costs of business, that will be a negative for Grand Bahama. It’s certainly not going to be helpful to us.

“In their general election campaign, the PLP promised to pay close attention to Freeport. If this is the kind of attention they’re going to pay to us, thanks but no thanks.”

The guidance notes effectively confirm that business-to-business services transactions in Freeport will be subject to different VAT treatment than that imposed on goods.

While such services deals will be hit by the new 7.5 per cent tax, Freeport’s ‘bonded goods regime’ - where goods for sale by one GBPA licensee to another for use in its own business are exempt from Customs duties - will be untouched by VAT.

Kevin D. Seymour, the Grand Bahama Chamber of Commerce’s vice-president, declined to comment when contacted by Tribune Business because he had yet to study the Ministry of Finance’s guidance notes.

He did, though, say: “We had raised in an earlier communication to government back in February, that we wanted some clarification on whether VAT would be assessed on services.

“Based on what you say, it appears it might be.”

There was better news, though, on the goods front with the VAT ‘guidance notes’ confirming that Freeport-based retailers/wholesalers would not have to VAT on their imports at the border, then claim this back from the Government.

“Some retailers will not know at the time of import whether the goods they sell will be sold to a Port licensee for use in their licensed activity, or sold for a private use and, as such, will not be able to determine whether import VAT is due or not,” the ‘guidance notes’ said.

“For retailers that have a specific agreement with the Customs authorities that permit the duty to be declared when the item is sold, rather than when it is imported, this same agreement will be extended to VAT.

“If the item sold is subject to VAT, the retailer will need to declare on the VAT return the output tax (the VAT they charge the customer) and the input tax (the import VAT due on the item). On the same return they can recover the input tax.”