By NEIL HARTNELL
Tribune Business Editor
The private sector is awaiting the Government’s formal response to its arguments in favour of Value-Added Tax (VAT) exclusive pricing, amid last-ditch hopes this can be made “optional”.
Gowon Bowe, the Coalition for Responsible Taxation’s chairman, told Tribune Business that the business community was pushing for the New Zealand model, which mandated neither VAT ‘exclusive’ or ‘inclusive’ pricing.
New Zealand only requires that merchants ensure end-consumers have a complete understanding of pricing, and whether it includes VAT or not, thus permitting an “optional” model that the private sector hopes the Government will agree at the ‘11th hour’.
Mr Bowe said the VAT pricing issue went to the heart of the retail economy’s competitiveness, given that uncompetitive ‘inclusive’ price comparisons would likely drive more Bahamians and tourists to shop in the US as opposed to locally.
“The Coalition and the retailers have formally written to the Prime Minister and Cabinet as it relates to the arguments for exclusive pricing,” the Tax Coalition chairman told Tribune Business. “We are waiting for a response to that.
“There are still hopes, from an economic and competitiveness perspective, of leaving it optional as long as there is labelling for consumers to understand the end price. New Zealand does not mandate inclusive or exclusive.”
Time, though, is running out for the private sector to achieve movement in the Government’s position. The February 28 deadline for all VAT registrants to complete the switch to ‘inclusive’ pricing is just five days away, although the Ministry of Finance has indicated it will not be “overly prescriptive with that deadline”.
Mr Bowe said that since submitting the joint Coalition/Bahamas Federation of Retailers letter, he had spoken to Prime Minister Perry Christie and two of his Cabinet ministers - Michael Halkitis and Khaalis Rolle - on the pricing matter.
All have assured him that the Government has “a formal position to put back to us” on the VAT pricing issue.
“We’ve articulated to them that where we compete with the US, we have price comparability,” Mr Bowe told Tribune Business. “We already have the difference in terms of freight and duty. If you then factor in 7.5 per cent, some people say it doesn’t make a difference, but it does.”
He explained that requiring Bahamian merchants to adopt a mandatory VAT ‘inclusive’ model would cause further “price discrepancies” with Florida and US merchants, who do not have to show the tax on shelf or product pricing.
US retailers only have to display sales (consumption) taxes on the sales receipt handed to customers post-purchase, whereas their Bahamian counterparts under a VAT ‘inclusive’ model will have to incorporate the tax in shelf prices - at the point where purchase decisions are made.
Most local retailers thus fear that the Bahamian approach, with VAT added on top of freight and import tariffs, will result in consumers viewing their prices as increasingly uncompetitive. As a result, they will head to Florida in increasing numbers.
Philip Beneby, the Retail Grocers Association’s president, said he had received no concerns from his members that they would fail to meet the February 28 ‘inclusive pricing’ deadline.
However, he conceded that his own business, Carmichael Road-based Courtesy Supermarket, was “not 100 per cent complete yet” with the pricing transition.
And, while it hoped to be, Mr Beneby said the store was still awaiting the installation of equipment that would enable its produce and meat departments to be fully VAT ‘inclusive’ compliant.
“I’ve not heard any real concerns from them,” Mr Beneby told Tribune Business of the Association’s members. “But we’re still trying to complete ourselves.
“It’s not 100 per cent completed yet with all the items, but we hope to have them in line in or around that time [February 28].
“In two areas, which is the produce and the meat, we’re waiting for a piece of equipment to be able to complete our conversion to inclusive pricing. Hopefully we should have that piece of equipment in store and installed by that time.”
Mr Beneby said the transition to VAT ‘Inclusive’ pricing was “more time consuming” than if the Bahamas had gone with an ‘exclusive’ model, requiring all its systems - inventory and sales registers - to “be in sync” with one another.
“That’s the cost involved in doing it,” he told this newspaper. “We have to have the equipment in sync to carry out inclusive pricing. If it was exclusive, it would be so much easier. It would not have been so costly. In terms of profit margins, it is costly.”
Comparing the two VAT pricing strategies, Mr Beneby said: “Exclusive is just a matter of your check-out system being adjusted to whatever rate is set.
“Set your check-out system to whatever rate the Government implements, and you are ready to go. That’s how simple exclusive is in comparison to inclusive.”
The Government’s decision to go with the ‘inclusive’ model has forced Bahamian retailers to re-price all their shelf and inventory items, as well as adjust their systems. This has further exacerbated the preparation time and costs associated with the transition.
The Tax Coalition’s Mr Bowe told Tribune Business that this seemed to be contrary to the Bahamas’ stated objective of improving the ease of doing business in this nation, and reducing costs associated with it.
He pointed out that many retailers’ systems would have been designed for, and bought in, the US, where consumption-based taxes were treated as price ‘exclusive’. Backing Mr Beneby’s position, Mr Bowe said the ‘inclusive’ push would have forced many to make expensive adjustments.
He added that some might view as a “discriminatory practice” the decision by the Government to allow dine-in restaurants to continue with VAT ‘exclusive’ pricing on their menus, with the 7.5 per cent levy added on the final bill.
This was permitted to allay restaurant fears that including VAT in the menu price, combined with the 15 per cent gratuity, would result in them being perceived as over-priced and uncompetitive.
This, as Mr Bowe pointed out, is exactly the same case being made by the Bahamian retail industry but, at the moment, it appears as if there are different VAT-related rules for different sectors.
“Time is running out,” Mr Bowe told Tribune Business. “Persons don’t want to be outside the law on February 28. “We want a final position by the Government.
“It’s about the economy and trying to make ourselves as competitive as possible.”
Mr Bowe said the Coalition and Retail Federation wanted to see the Ministry of Finance’s arguments as to why VAT ‘inclusive’ pricing was the superior option.
He expressed hope that the two sides would “be able to come to a medium where we understand each other”.
The Christie administration initially opted to go with a VAT ‘exclusive’ pricing model, which was ironically opposed by merchants then due to the large number of ‘exemptions’ contemplated under the inaugural 15 per cent rate.
The Government ultimately opted for a broad-based, lower rate VAT model, but the ‘inclusive’ versus ‘exclusive’ pricing argument is arguably the greatest unresolved issue with the private sector.