By NEIL HARTNELL
Tribune Business Editor
The Bahamian insurance industry was yesterday granted a ‘last-minute’ two-week extension for the filing of its first Value-Added Tax (VAT) ‘credits’ claim, a leading executive acknowledging the sector “didn’t get everything we wanted”.
Emmanuel Komolafe, the Bahamas Insurance Association’s (BIA) chairman, told Tribune Business that the Ministry of Finance had granted the industry’s request to move the now-past June 15 deadline for receiving 2015 first quarter VAT ‘credits’ claims to June 30.
He explained that the Ministry granted the concession after providing answers to the industry’s questions over the VAT ‘tax credits’ claims form on the “day they were due” to be submitted.
“We asked for an explanatory note, a document, for the insurance claims forms,” Mr Komolafe told Tribune Business. “The first form was due on June 15, and we received the answers pretty much on the due day.
“They [the Ministry] granted us the extension for the filing of the form. The deadline is now June 30. The extension came late, but it did arrive. We got that today, either last night or this morning.”
The Bahamian insurance industry is due to submit two VAT ‘tax credit’ reports, one for the 2015 first quarter and another for the second quarter, as part of the transitional arrangements agreed with the Government. The second quarter report is due on July 28.
The sector was given an extra six-month period to prepare for VAT’s implementation, but for the period to end-June 2015 has been unable to reclaim the hundreds of thousands of dollars paid on its ‘inputs’.
The Government acknowledged the increased cost pressures this imposed as a major concern, hence the agreement allowing the insurance industry to apply for VAT ‘tax credits’ and reclaim these input payments.
Mr Komolafe, though, told Tribune Business that the ‘tax credit’ arrangement was a “compromise” that contained a potential ‘catch’ for the sector.
“The compromise on the part of the Government was that we will be able to do it,” he explained. “Come July, we will be able to claim. But there is a compromise on it related to the total premium tax you pay.
“They amount of VAT input tax you can reclaim is equal to the premium tax you pay for that [six-month] period. If you go above that, you don’t have any relief for any amount that you go over that cap.”
Mr Komolafe said the insurance industry would also be unable to recover “the hundreds of thousands of dollars” spent on upgrading their systems and hiring consultants to prepare for VAT.
However, he praised the Ministry of Finance for showing “goodwill” in working with insurers on VAT implementation, responding to its questions and providing clarification on the sector’s ‘guidance notes’.
“We didn’t get everything we wanted in terms of the change, but they tried to provide clarity and answer queries. They have been responsive,” Mr Komolafe said of the BIA’s dealings with the Government.
The Christie administration’s VAT policy towards the insurance industry has changed at least twice. It was first proposed that the sector be VAT-able when the 15 per cent rate was unveiled, only for the Government to then reverse course and deem it ‘exempt’ from the tax.
Finally, following closely the advice received from its New Zealand consultants, the Christie administration performed another ‘u-turn’ and decided that insurance would, after all, be VAT-able at the 7.5 per cent rate.
While annuities and life insurance will be ‘exempt’ from VAT, given that they are considered savings products, health and property and casualty insurance premiums will be subject to the 7.5 per cent levy.
Mr Komolafe yesterday expressed hope that the Government’s National Health Insurance (NHI) scheme would open the door to a potential reversal of VAT’s application to health insurance premiums.
He explained that the 7.5 per cent levy, added on top of the existing 3 per cent premium tax, was directly opposed the Government’s objective of reducing Bahamian healthcare costs.
“We still have concerns,” Mr Komolafe told Tribune Business. “Some people say the train has left the station, but this is coming to the fore with the NHI discussion.
“We have VAT on health insurance premiums, and as part of the goal of universal healthcare is to make it more affordable, imposing additional taxes on premiums doesn’t help achieve that.
“We remain engaged with the Ministry of Finance and hopefully, as part of the discussion on NHI and healthcare reform, we will revisit taxes on health insurance premiums, although there is nothing to suggest that’s on the table at this point in time.”
Mr Komolafe added that the Bahamas would be one of only four to five countries to levy VAT on insurance premiums once the sector’s implementation took effect next Wednesday.
The industry had argued for ‘exempt’ status to ensure insurance premiums remained affordable for Bahamians, Mr Komolafe revealing that it had calculated prices would increase by less than the 7.5 per cent VAT rate if this was granted.
“On the exempt status, even though we would not be able to reclaim input tax payments, it was the view of the BIA that any increase in premiums would not have been equal to the VAT percentage,” he told Tribune Business.
“That was why we pushed that, and it was also on the premise that health insurance premiums were exempt.”
Mr Komolafe said the insurance industry was set to launch a consumer education campaign on VAT next week to coincide with the tax’s implementation on insurance premiums.
“There will still be some technicalities that need to be ironed out,” he added, “but in terms of issues to-date the Ministry of Finance has provided us with responses and tried to work with us.”