By NEIL HARTNELL
Tribune Business Editor
The Bahamas Insurance Association's (BIA) chairman yesterday branded the budget process "untidy" following the government's last-minute reversion to its original VAT "exempt" position.
Emmanuel Komolafe told Tribune Business that, following talks with the Ministry of Finance's financial secretary and Department of Inland Revenue (DIR), the industry found that only "owner-occupied dwellings" will be treated as "exempt" for VAT purposes.
This marks a return to the position laid out in the deputy prime minister's original budget communication, but represents a major change from the draft VAT Amendment Bill that showed up to 85 percent of property and casualty product lines - including motor, aviation, transportation and liability coverage, as well as residential property - was to be treated as VAT "exempt" from July 1.
Mr Komolafe revealed that the draft Bill was only amended, and returned to the Budget communication position, between Friday and Monday this week "depending on who you talk to" within the Government.
The latest '11th hour' change is the latest Budget-related surprise for the Bahamian insurance industry, with Mr Komolafe reiterating "time is of the essence" when it comes to the Government releasing its VAT 'guidance notes' so the sector and its customers can enjoy a smooth transition to the 12 per cent rate and associated structural changes.
He warned that it was critical "to avoid chaos" in the transition, and said it was "only fair" for the insurance industry to receive similar treatment to the extended timelines granted to the hotel and construction industries given that its policies 'locked in' the prevailing 7.5 per cent VAT rate until their renewal.
"One of the things that came out of this whole Budget debate is that the process was untidy," Mr Komolafe told Tribune Business. "The Budget communication said one thing, the VAT Amendment Bill said something else and, just before it was passed in Parliament we were advised the Bill was in error and [exempt status] only applies to owner-occupied dwellings.
"It's changed again, and we were not given any notice of what was going on. This was changed between Friday and Monday. That's what we've been told, depending on who in government you talk to."
The BIA chair said the latest change was revealed to him by Marlon Johnson, the Ministry of Finance's acting financial secretary, who informed him that the Bill's inclusion of multiple property and casualty insurance produce lines "was an error and there will be an amendment to reflect only owner-occupied dwellings will be exempt".
Mr Komolafe said the industry was now eager to obtain the final Bill passed by the House of Assembly, and added that the Budget's "untidy" nature was further illustrated by revelations yesterday that the VAT 'zero rating' of medicines will only take effect from August 1 - not July 1 as many believe.
This will mean medicines are subjected to the new, increased 12 per cent VAT for one month, with Mr Komolafe revealing that the disclosure came when the insurance industry met Department of Inland Revenue (DIR) officials over the Budget yesterday.
He added that the DIR promised that "revised guidelines" for the insurance industry's transition to a 12 per cent VAT will be released this week, and expressed hope this will answer all outstanding issues for the sector.
"We discussed the challenges of implementation and the short timeframe," Mr Komolafe told Tribune Business. "They are mindful of the challenges we face, and will make representations to the Financial Secretary and Minister of Finance with respect to providing us ample time for being able to adjust.
"It was very clear that time is of the essence, but to have a smooth roll-out and avoid chaos there has to be some transition provisions that make it easier for us to implement these changes to the VAT regime.
"Bearing in mind some accommodation was provided for the hotel industry, the construction industry, we expect that it's only fair that they do the same thing for the insurance sector."
With the existing 7.5 per cent rate already 'locked in' on many insurance contracts, Mr Komolafe said the industry could only apply the increase to 12 per cent once such policies came up for renewal. Clients also needed to be notified of premium increases, and adjust payments made by direct debit or other means accordingly, all of which will take time.
The BIA chair also warned that "the messaging needs to be right" from both the Government and private sector as to what the 'exempt' status for residential property insurance means, given that this is unlikely to translate into a 12 per cent fall in premium prices as insurers are unable to offset their 'input' VAT.
"The first thing is clarity on the transition period and implementation date," Mr Komolafe reiterated. "We are seeking that in ample time to adjust our systems, notify clients and make sure they can adjust their payments.
"We've indicated this is very important, and they've made a commitment to get back to us with guidance and transition provisions, and an implementation date. I did state to them that based on the short timeline our members have we don't want them to be penalised because of the lack of clarity.
"The amount of work that needs to be done; we don't have sufficient time. They said it wasn't the intent of the Ministry of Finance to penalise; they want to work with industry, not disrupt the industry, which is positive. We hope that will translate into action over the next couple of days."