By NEIL HARTNELL
Tribune Business Editor
The Bahamian tourism industry is concerned that levying Value-Added Tax (VAT) on domestic travel will undermine ‘island hopping’ and the distribution of visitor dollars throughout this nation.
The Coalition for Responsible Taxation, in its list of unresolved VAT-related issues, noted that the Government “agrees in principle” that tourists should not be subject to the 7.5 per cent levy on tickets for air and sea travel between Bahamian islands.
The Coalition, though, said details about how this could be implemented in practiced still needed to be worked out, such as “how long a stayover [in Nassau] can occur with a domestic leg”.
“The Bahamas Hotel and Tourism Association (BHTA) put forth the position to Government that the domestic leg should not be subject to VAT as long as it was part of a continuous travel itinerary to and/or from the Bahamas,” the Coalition paper said.
“For travel to and from the Family Islands, a 24-hour window in the connecting leg through Nassau is reasonable. Increasingly, ‘Island Hopper’ vacations are occurring, with several days stay in Nassau-Paradise Island and several days in a Family Island resort. These are generally booked together, and in these instances the domestic legs should not be subject to VAT.”
International travel to and from the Bahamas is zero-rated for VAT purposes, but domestic inter-island travel in all forms is being subject to the 7.5 per cent levy.
The concern here is that VAT might act as a disincentive to tourists visiting multiple islands, something that has been a key Ministry of Tourism goal and the focus of numerous marketing campaigns.
Elsewhere, the Coalition list reveals that the Government has asked the BHTA to create a non-profit affiliate that would handle its scholarship, charitable and other fund-raising activities, so they avoid VAT.
“Organisations like BHTA, Bahamas Hotel Employers Association (BHEA), the Marina Operators of the Bahamas (MOB) and Promotion Boards will be subject to VAT and not excluded,” the Coalition said.
“BHTA has argued that an element of the organisation’s work is undertaken for the good of the country and therefore should not be required to assess VAT.”
It added: “The Government has maintained that only registered charity non-profits will be excluded from paying VAT, and therefore the Boards, BHTA and other trade groups would be liable for VAT.
“Government has advised BHTA to consider creating a separate but related non-profit organisation to handle transactions related to charitable activities, such as fundraising for scholarships, disaster relief, and other education related activities.”
Another ‘sticking point’ is the Government’s insistence that VAT be paid on the market value of complimentary rooms, something the BHTA believes will impact the industry’s marketing and promotion activities.
And the Coalition warned that major revenue leakage may occur from the several hundred vacation rental homes that, with turnovers under $100,000 annually, will not have to register and pay VAT.
These properties are currently paying the 10 per cent room tax that will be eliminated by VAT, essentially resulting in them becoming un-taxed. This, the Coalition is arguing, will give them a major competitive advantage over Family Island resorts that will be levying VAT.
“Unless the rental home’s revenue exceeds $100,000 per year, they are not subject to register for VAT,” the Coalition warned. “Several hundred vacation rental homes are presently paying a 10 per cent room tax and will not be required to pay anything when VAT is in effect, as they don’t pass the threshold.
“This creates revenue leakage and lack of fair play with licensed hotels, particularly small operators in the Family Islands.
“This needs to be reviewed and revised. In all fairness to the industry and Government, the threshold and enforcement approach for this sector should be reconsidered.”