The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is at odds with the insurance industry over the recovery of Value-Added Tax (VAT) paid on Hurricane Joaquin claims, Tribune Business can reveal, with some believing the Christie administration has changed a previously-agreed position.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, said the issue revolved around the industry’s ability to recover or ‘net off’ the VAT paid on certain Joaquin claims.

The Government’s position is that if no VAT was paid on the premium by policyholders, then property and casualty underwriters are unable to recover the 7.5 per cent levy they pay on the claims.

Given that Joaquin struck at the beginning of October, and that VAT was only levied on general and health insurance premiums from July 1, 2015, onwards, there is effectively a ‘nine-month window’ during which annual premium payments would have been ‘VAT-free’ for policyholders.

“There are new issues emanating, particularly from the insurance sector,” Mr Bowe told Tribune Business of VAT. “How to deal with claims that may not have had VAT paid on the premium.”

Mr Bowe said a policyholder may have taken out protection in February 2015, when the insurance industry did not have to levy VAT on premium payments, and then have been forced to submit a claim as a result of Joaquin-related damage.

“Come the October 2015 hurricane, any settlement of claims will incur VAT,” the BCCEC chairman explained. “The industry’s previous understanding was that they could claim that [claims] VAT back.”

However, the Government’s position now was that “if there’s no VAT on the premium, there’s no recovery of VAT on the claim”.

“They’ve said the alternative is to go back to the client [and get them to pay the VAT], which we know is not practical,” Mr Bowe added.

The Chamber chief’s explanation was backed up by Tom Duff, Insurance Company of the Bahamas (ICB) general manager, who suggested to Tribune Business that the industry felt the Government had changed its position on the issue.

“That’s what I understand the Government’s latest position to be,” Mr Duff said, backing Mr Bowe’s explanation.

“That’s my understanding of the current situation, which the Bahamas Insurance Association (BIA) is seeking to clarify, as that is contrary to our understanding from the Government earlier in the year as to how the VAT would work.”

A senior insurance industry executive, while downplaying the notion of a dispute, confirmed the sector and the Government were in discussion over the issue.

Speaking on condition of anonymity, they suggested that there was an absence of precedents to guide the Bahamas in such a situation, because the majority of VAT-charging countries exempt the entire insurance industry from the tax.

“We’re still in discussions with the Government as to how claims and the VAT element are going to be dealt with,” the executive told Tribune Business. “It’s still under discussion.

“There were some differences of opinion as to how it works out when we introduced VAT because the majority of countries around the world where VAT is charged exempt insurance altogether.

“It’s creating some problems because there’s very little we can refer back to.”

Mr Bowe, meanwhile, said the ‘VAT on claims’ situation highlighted the Government’s wider failure to meet with the private sector and address all the outstanding issues it was notified of around the tax’s January 1, 2015, implementation.

While acknowledging that none of the identified problems would undermine VAT by themselves, Mr Bowe said they raised issues important to specific industries.

He warned that if the Government ignored or neglected these matters, if faced losing private sector goodwill and co-operation on initiatives of similar scale and importance to VAT.

“I wish they had been,” Mr Bowe replied, when asked by Tribune Business whether the Government had dealt with the ‘outstanding VAT issues’ list submitted to it by the BCCEC.

“But that’s still sitting there. That’s not a priority for them, and will eventually come back to bite them.”

Mr Bowe added: “None of them [VAT issues] were the beginning-all and end-all type of thing. From that perspective, it’s either going to be belaboured clarity and, when they have challenges with what’s taking place in the real world, it’s a longer process and more challenging for things that need to take place.”

Mr Duff also revealed to Tribune Business that ICB’s overall gross loss from Hurricane Joaquin was “less than $2 million”, with the carrier having received between 30-40 property-related claims and around “half a dozen” on the auto front.

Previous estimates had placed total Bahamian insurance industry losses from Hurricane Joaquin at between $25-$30 million.

Joaquin, a Category Four storm, was not expected to be a significant claims event for the property and casualty industry despite the devastation inflicted on the impacted islands.

This was because the five worst hit locations - Long Island, Rum Cay, San Salvador, Acklins and Crooked Island - all had small populations where insurance penetration, and exposure, was probably the least.

The general rule is that the further south you travel from Nassau, the less the level of insurance coverage and penetration.

This means that many residents whose homes, vehicles and businesses suffered damage, or are total write-offs, will have to rebuild or replace those assets via their own resources or whatever hurricane relief comes their way.