By NEIL HARTNELL
Tribune Business Editor
Insurers are warning the Government it is "extremely critical" it clarify the VAT treatment of property and casualty products with another hurricane season less than a month away.
Industry executives told Tribune Business it was "urgent" that they "get on the same page" with the Government, especially if it forces any changes in the sector's business model that impacts the claims process and Bahamian consumers.
They added that the Government had promised to present its formal position on the issue to the insurance industry "within a week or so" several months ago, but this had not been forthcoming.
The sector is still understood to be awaiting multi-million dollar VAT refunds/credits on Hurricane Matthew-related claims stemming from 2016, and wants the Government to provide "clarity, not certainty" on whether the 7.5 per cent levy will continue to apply to property and casualty insurance premiums.
"The industry and the Government have yet to reach a landing on this issue," Tom Duff, Insurance Company of the Bahamas (ICB) general manager told Tribune Business. "The industry is waiting on the Government to formalise its position.
"We expect fairly soon that the Government will have completed its review, which will give the industry a definite position on VAT and how it's applied. I think at the moment we all believe applying VAT to property and casualty insurance products is probably not the best way for the industry and government to go.
"It's proven to be extremely complex, especially when faced with hurricanes like we've had for the last several years," Mr Duff added. "I think the industry will be wanting to sit down with the Government and review all options for this."
The Bahamas is one of very few countries to levy VAT on property and casualty insurance premiums, with most opting not to because of the difficulty in determining where the "value is added" and the complexity when claims-related credits/refunds are sought.
With The Bahamas in the "hurricane belt", a major storm strike results in multi-million dollar refund/credit submissions, as illustrated by the aftermath of Hurricane Matthew - sums the cash-strapped Public Treasury is struggling to meet.
Kevin Seymour, the former Grand Bahama Chamber of Commerce president, told Tribune Business several weeks ago that the Government had effectively "trapped itself" by applying VAT to property and casualty insurance premiums.
Lacking the necessary cash flow to meet the sector's credit/refund claims, he said it was now resorting to demanding that companies who received Hurricane Matthew claims pay VAT from these proceeds.
Mr Seymour said that among the many unintended consequences of this move was the imposition of VAT on cross-border, inward bound foreign exchange inflows that were vital to the Bahamas' post-storm recovery.
Besides seemingly violating the VAT Act's intention that the tax only be imposed on economic activity within the Bahamas' borders, Mr Seymour said this was also resulting in the repatriation of a portion of the claims proceeds back to the foreign reinsurer. And companies were also having to 'eat' VAT on business interruption insurance payouts.
Mr Duff told Tribune Business that the "first conversation" between industry and the Government will start once the latter presents its formal position on how VAT is to be applied to catastrophic coverage.
"The second discussion, to come later, is whether applying VAT on property and casualty is the right way to go for the country," he told Tribune Business. "It's a very complex tax when you have the potential for large credit refunds.
"This is the problem, and we'll have to sit down with government and decide it. Is there a better way to deal with this?"
Mr Duff's concerns were echoed by Emmanuel Komolafe, the Bahamas Insurance Association's (BIA) chairman, who said the sector was still waiting for the Government's position despite having held meetings on the issue with K P Turnquest, deputy prime minister, Ministry of Finance and Department of Inland Revenue officials.
"It was arguably the most important and pressing matter facing the general insurance industry at this time," Mr Komolafe told Tribune Business, "and it becomes more important as we come to the start of the 2018 hurricane season.
"There's a need for clarity, everyone to be on the same page as far as tax treatment is concerned. We've met with the Minister of Finance [Mr Turnquest], had two meetings with the Department of Inland Revenue. There's been several consultations between the parties."
Mr Komolafe said the meetings concluded with the Government promising to issue its formal position on the VAT treatment "in just a matter of days, a week or so". That, though, was several months ago, and he added: "To this date we have not received it, and it's extremely critical that we do.
"The industry wants clarity; it doesn't want uncertainty. As we go into this hurricane season, it's quite an important issue. We're just waiting to hear from them. It's several weeks now, and we have not received what we expected to receive from them a few days later. It's quite urgent."
Mr Komolafe added that the BIA had set up a committee to specifically address the VAT issue, and added: "We just want to have clarity. It may impact the business model for general insurance companies going forward. A lot goes into this, and it's the earlier, the better for the industry.
"We know the Government has a lot on its plate, but this has enough material implications to merit urgent attention. The general public needs to be kept abreast of what's going on, especially if there's any change in terms of the business model and claims process. They need to be made aware.
"If you want to increase the penetration of insurance, but have less persons insured, in the event of a national disaster those persons who are uninsured or underinsured - because of affordability - the burden gets shifted to the state and taxpayer. Does it make much sense to have VAT on insurance?"