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By NEIL HARTNELL
Tribune Business Editor
Government ministers and officials yesterday brought relief to food retailers by confirming that the budget's "breadbasket" items will be treated as "zero-rated" for VAT purposes.
However, their property and casualty insurance counterparts were not so lucky, as both KP Turnquest, deputy prime minister, and Marlon Johnson, acting financial secretary, suggested the removal of VAT from residential property premiums will be treated as "exempt".
While both men said they needed to confirm the insurance treatment, "exempt" status means that insurers will be unable to "net off" or claim back the VAT paid on their inputs as there is no "output" VAT paid by insureds.
As a result, insurance companies will either have to absorb the increased tax burden or pass this on to consumers. Most will likely do the latter, meaning that the removal of VAT from residential insurance premiums may not result in lower costs for consumers.
"All the material things will be zero-rated," Mr Johnson told Tribune Business of the VAT "eliminations" unveiled in the 2018-2019 budget. "The insurance once I have to confirm, for all the others they are zero rated."
He also revealed that "guidance notes" for the transition to a 12 percent VAT, with its accompanying exemptions, will be released this week so the private sector "understands how to treat things already in train" such as contracts and other agreements.
Mr Turnquest, meanwhile, told Tribune Business: "Breadbasket to be zero-rated. Insurance to be exempt. The latter is subject to confirmation." That will ease the concerns of food retailers, as they will no longer have to pay VAT on their inputs in proportion to the amount of inventory they sell, as well as removing the burden from consumers.
"Exempt" status could have been especially problematic for food stores. For example, if 60 percent of a food store's inventory was VAT-able, and 40 percent "exempt", that business would be unable to reclaim 40 percent of the VAT paid on its "input" costs - such as rent and utilities.
This, in turn, increases that business's operating costs, forcing it to increase prices to compensate. These price increases might encompass a broader base of goods, and greater rises, than if all goods had been VAT-able.
Mr Turnquest said the zero-rating of "breadbasket" items, and removal of VAT from medicine, was designed to relieve the burden of a 12 percent rate on "those most vulnerable families".
He added: "We appreciate the sacrifice Bahamians are being called upon to make. And this is why we will remain committed to proper fiscal management, so that The Bahamas does not get into a spiral of ever-increasing tax burdens on its citizens."