By NEIL HARTNELL
Tribune Business Editor
The deputy prime minister has pledged that VAT refunds will not be unduly “withheld” from the insurance industry, voicing hope the two sides will resolve their differences “in the near future”.
KP Turnquest, emphasising that the government “wants the industry to be successful”, said it nevertheless had an obligation to the Bahamian people to collect all revenues due to the Public Treasury and “do what is right” in complying with the law.
Speaking after the Bahamas Insurance Association (BIA) warned that the sector was “at loggerheads” with the government over VAT refunds, including the Department of Inland Revenue’s (DIR) interpretation of the Act, Mr Turnquest added that the two sides will “work through” the dispute to come to a shared understanding of what the law says.
“The BIA knows what our position is at the moment,” he told Tribune Business. “It’s an ongoing dialogue. We’ll work through the issues, and hopefully come to a shared understanding in the near future and what the law says it is.
“It is not our intention to withhold any refund or revenue due to the insurance industry. We are partners in this arrangement, and want them to be successful. Our intention is to comply with the law and, if there are revenue refunds due to them, we want to discharge that obligation. But we have a duty to the Bahamian public to do what is right, and what is seen to be right according to the law.”
Warren Rolle, the BIA’s newly-elected chairman, recently branded the VAT refund situation as “untenable” given the threat it posed to insurers’ cash flows and solvency margins.
Describing the impasse as a “major disruptor” for the Bahamian insurance industry, he explained: “When VAT was implemented in 2015, representations were made by government officials - and details shared in guidance notes by the Department of Inland Revenue - indicating that general insurance claim settlements were deemed to be VAT inclusive.
“Therefore, insurers were allowed these input tax deductions to be offset against VAT collected and payable to the government. It is noteworthy that insurers advised the government of the day that it was reasonably foreseeable that following a major catastrophic event, significant credits would be owed to insurers following settlement of claims. Nonetheless, the government maintained its position and the industry proceeded with its remittance to the government on the aforementioned basis.”
Mr Rolle added that when Hurricane Matthew struck in 2016 it created insured losses in excess of $400m. “Based on the established VAT treatment that had been accepted by the DIR, the event resulted in substantial credits being owed to insurers. Some insurers continued to offset the input tax deductions while others sought refunds from the government,” he said.
“General insurers have recently received assessments from the DIR indicating that a substantial portion of the input tax deduction, retroactive to 2015, is now disallowed as they were claimed on non-VAT registrants. This is a fundamental departure from the policy communicated to the industry and the practice that has persisted for several years, resulting in significant sums being allegedly owed to the government.
“It would seem a stretch that all general insurers misinterpreted what was communicated with respect to the treatment of input tax deduction at the inception of the policy. Further, it is curious that this only became an issue after insurers offset the significant credits owed to them by government, or sought credit refunds, following the passage of Hurricane Matthew.”
Mr Rolle further warned: “It has major implications on cash flows for general insurers, and will affect the solvency margins which our regulator pays keen attention to.
“We appreciate that the Government requires revenue to meet its fiscal objectives, but it cannot do so to the detriment of an industry that has provided a sustained and consistent source of employment for hundreds of Bahamians. The insurance industry has consistently paid its share of taxes, and has paid hundreds of millions of dollars over many years to assist in restoring the lives of ordinary citizens and businesses following catastrophic and other events.
“The Government’s position as communicated by the DIR is one that the insurance industry cannot willingly embrace. Government is continuous, and a new administration cannot simply disregard or dismiss policy decisions and obligations of its predecessors. We have been in dialogue with the DIR but are at loggerheads.”