By NEIL HARTNELL
Tribune Business Editor
Top Bahamian Contractors Association (BCA) executives yesterday took opposing stances on the industry's ability to access the "waiver" from 12 pecent VAT on pre-existing contracts.
Leonard Sands, pictured, the BCA's president, told Tribune Business that contractors were still incurring 12 percent VAT payments "out of pocket" on materials purchased locally or imported for projects "in progress" that were supposed to be honoured at the pre-existing 7.5 percent rate.
He blamed the absence of "concrete documents" from the Department of Inland Revenue (DIR) showing that contractors engaged on projects underway, or signed, before July 1 were entitled to pay the lower rate.
But Tameka Hanna, the BCA's vice-president, said the construction industry understood that, since VAT is a pass-through tax paid by the end consumer, it will be able to offset or 'net off' any 12 percent levy on their inputs against the 7.5 percent charged to their clients.
Should contractors pay more in "input" VAT than they remit to the Government, Ms Hanna said they would be able to claim a refund or credit from the Public Treasury - a position backed by the Ministry of Finance's acting financial secretary, Marlon Johnson.
Mr Johnson said it was "not clear" what extra guidance Mr Sands was seeking, since no forms or documentation were required by contractors for presentation to the Government so that they can access the 7.5 percent VAT rate on pre-existing projects.
He added that the Ministry of Finance's only requirement was that contractors submit details of their pre-existing contracts to it by August 31, 2018, so it can ensure proper record-keeping on all arrangements accessing the lower VAT rate.
The Ministry of Finance's own transition guidance notes state: "If you are in the construction industry or a developer, special provisions have been made for you where you have contracts that are in progress or have been signed but not yet commenced.
"If you have contracts in process you are not required to adjust the VAT charged on those contracts once the contract was entered into and commenced before July 31, 2018. The contract must be completed on or before February 28, 2019.
"You will have to provide the Department of Inland Revenue (DIR) with details of all such contracts in the manner prescribed before 31 August, 2018. Only transactions consistent with the details provided to the DIR by yourself will be eligible for this treatment."
Mr Sands, though, argued that contractors were still facing "challenges" over how the waiver from 12 percent VAT on pre-existing contracts was operating in practice.
"One agency, Customs, requires you to pay VAT at the port of entry unless you have some concrete document, letter or form from the VAT Department," he told Tribune Business. "You submit 7.5 percent but you are paying 12 percent at the port of entry."
Describing the extra 4.5 percentage points as an "out of pocket cost" being incurred by contractors, Mr Sands said such concerns were raised when DIR official, Keith Worrall, addressed a recent BCA monthly luncheon meeting.
"We're still paying 12 percent, even though he's saying to put in the returns and pay at 7.5 percent," the BCA president added. "The actual cost you're paying is 12 percent. While we've been given a waiver, our cost point is still 12 percent.
"We have to come up with 12 percent to pay for goods and services. Everything we import is at 12 percent. It is being felt even though on the back end they're saying to remit less. The challenge is we would have liked the industry not to pay 12 percent across the board to all vendors and suppliers.
"The waiver has no effect as the cost out-of-pocket is still out-of-pocket. There's still some kinks in the system to work out, but the benefit is not felt for us. We have to deal with the increased cost, and work through with the clients to find an extra 4.5 percentage points."
This, though, was contradicted by Ms Hanna, who agreed with Mr Johnson that since VAT is a pass-through to the end-consumer, contractors can net off the 12 percent 'input' VAT against what they charge clients and claim refunds/credits if they find themselves in a negative position.
"I just think the message has been a bit distorted," she told Tribune Business, "but the construction industry has been given the pre-qualification and information on how to operate. It's up to the industry to manage and keep records, and anything they're paying 12 percent on, they are eligible to put that forward so they can get a rebate. The law allows you to pass on the extra expense; you don't absorb it."
Ms Hanna said media coverage elsewhere "was not right", and had portrayed the issue in "a negative light". She suggested it was not the message Mr Sands intended, adding that the sector had been "well informed".
The Ministry of Finance's Mr Johnson, meanwhile, reiterated that contractors did not need to obtain documents from it giving them permission to acquire building materials at a 7.5 percent VAT rate.
"We're not clear what specific guidance he's looking for," the acting financial secretary said of Mr Sands. "The long and the short is my assumption is there may have been confusion as to how it applies. There's nothing to claim from the Ministry of Finance to allow them to do it.
"They [contractors] will have to provide details of pre-existing contracts. We will give them the form and necessary information on the contract, so we're able to reconcile on their returns as necessary."