The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman says the Government is yet to decide whether to levy Value-Added Tax (VAT) on services transactions between Grand Bahama Port Authority licensees, a situation he branded as “crazy”.

K P Turnquest told Tribune Business he was informed by Dr Michael Darville, minister for Grand Bahama, that the Government was still “working through the issue” with less than four months to go before VAT implementation.

Questioning how the Government could still be determining an issue so fundamental to Freeport’s private sector and economy, the east Grand Bahama MP said the conversation with Dr Darville backed up his position that the Christie administration was “rushing VAT implementation and going to screw it up”.

“The Minister of Grand Bahama indicated they were still working through the issue of whether business-to-business services will be subject to VAT,” Mr Turnquest revealed to Tribune Business.

“I was talking to the Minister, expressing my disappointment with that, and he said to me they [the Government] were still talking about that. This thing is coming in three months. How can you still be deciding what the regulations are going to be? It’s crazy.

“This backs up the point I’ve made all along. They’re rushing implementation and are going to screw it up. Take your time, get it right and come to the public with something solid, defined and definite, and we can work with it. Do it right first time, for God’s sake.”

Dr Darville could not be reached for comment but, if Mr Turnquest’s account is accurate, his remarks were completely at odds with the position set out in the Ministry of Finance’s very own ‘guidance notes’ to VAT and the Hawksbill Creek Agreement.

Confirming that services supplied from one GBPA licensee to another will be subject to the 7.5 per cent VAT levy, the Government’s guidance notes state: “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).”

Tribune Business, which revealed the Government’s ‘VAT on Freeport services’ plan, reported that this placed the Christie administration at odds with the city’s private sector.

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

“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.”

If the Government proceeds with its services taxation plan, it will likely be challenged in the courts. Fred Smith QC, the Callenders & co attorney and partner, and the Hawksbill Creek Agreement’s main defender, has already indicated as much.

And Mr Turnquest, a former Grand Bahama Chamber of Commerce president himself, warned that errors of the nature committed by John Rolle, the Ministry of Finance’s financial secretary, last week threatened to undermine both public and private sector confidence in VAT and the Government’s fiscal reform programme.

Mr Rolle’s comments (later retracted and corrected), that Freeport’s ‘bonded goods’ regime would be subject to 7.5 per cent VAT, created temporary panic amid the city’s business community, who feared the foundations of the retail/wholesale economy were crumbling.

Mr Turnquest said the incident did not inspire confidence that the Government itself knew, or understood, what it was doing in relation to VAT. “I was very surprised,” he added. “John has been on this before, and a couple of times has been caught out.

“It says again to me that Freeport is an afterthought and they’ve not considered the issues. Every time they have to go back on one of those preliminary decisions made, or when the Financial Secretary gets up and gives an explanation that’s inconsistent with the legislation, it goes right to the heart of the confidence the public and private sector has in what the Government of the Bahamas intends to do, and the policies and regulations.”

With VAT looming on the horizon, Mr Turnquest said he felt Moody’s, the credit rating agency, was “over-optimistic” in believing Bahamian economic growth would remain at 2-2.5 per cent in 2015.

This was especially given that Baha Mar, the project that everyone “has pinned their hopes on to lift us”, would miss the tourism ‘high season’ by virtue of its ‘Grand Opening’ being pushed back to Spring - a factor Moody’s seemed to discount.

“It’s over-optimistic to think all is well and good,” Mr Turnquest told Tribune Business, suggesting that the US and world economies - upon which the Bahamas relies - were entering more geo-political uncertainty.

“If it goes along the lines of the previous year, we may get to 1 per cent, but I don’t see any indicators out there pointing to significant growth,” he said. “The first half of next year is certainly going to be a bit of a challenge.”

Mr Turnquest added that the cost increase VAT would impose on pre-existing contracts, post-January 1, might require clients to seen extra project financing - something they may be unable to get.