By NATARIO McKENZIE
Tribune Business Reporter
THE Bahamian Contractors Association's (BCA) president yesterday said it will "initiate" talks with banks on the rewriting of mortgages to offset the 12 percent VAT hike's impact.
Speaking with Tribune Business following the BCA's monthly luncheon at Poop Deck West, which featured Keith Worrell from the Department of Inland Revenue's VAT Unit, Leonard Sands said a conversation will have to take place with the Clearing Banks Association on the matter.
He added that while the Minnis administration has granted an eight-month VAT 'transition' for existing projects, honouring the 7.5 per cent rate for developments and construction contracts already underway, the same conditions do not apply relative to financial lenders and mortgages.
"The challenge is contracts that were with the bank at a fixed value before July 1, and then entered into after July 1," Mr Sands said. "It was suggested that we go back to the bank and renegotiate the increased cost.
"That conversation of going back to the Clearing Banks Association is going to be a difficult one because they are going to have rewrite a lot of mortgages for the additional value. I think that while it is not impossible, it is something that will have some sort of impact on the customers. We're not saying that it is impossible, but there definitely has to be a conversation between the Clearing Banks Association and contractors."
Mr Sands added: "There is a grace period until February 2019 between suppliers and contractors. Goods and services fall within the ambit of VAT. but a financial institution lending you money is a different story. This will have an impact; how much of an impact we can't say, but you're talking about sitting down with financial institutions and brokering a deal. We're hoping to lead that cause."
On this point, Mr Worrell said: "If you are telling me about an arrangement made with the bank to provide financing and the circumstances change, then that person would have to renegotiate. If I'm the consumer, the VAT falls to me. It means now that my position is different. If that was prior to July 1 that they had a mortgage approved, with a change in the VAT rate it stands to reason the cost would have increased.
"If the cost has increased for whatever purpose, VAT or otherwise, that is a determination the bank will have to make with regards to their ability to service the debt. As the contractor you are billing for your goods and services. You have to charge the VAT. It now becomes a consideration because the bank is now financing the original cost plus the increase in VAT you are going to be charging."
Mr Worrell also stressed to contractors the importance of proper record keeping.