'Misunderstood' on gasoline VAT cap


Ken Hutton

• Chamber chief: We weren’t calling for tax cuts

• Top official says dealer margins ‘kind of low’

• Industry doesn’t want ‘band aid’ solutions


Tribune Business Editor


Abaco's Chamber of Commerce president believes the Government may have "misunderstood" calls for it to cap - not cut - the amount of VAT it earns on gasoline sales in a bid to ease inflationary pressures in the Family Islands.

Ken Hutton, in a recent interview with Tribune Business, said suggestions by his and other Family Island Chambers to cap VAT at 45 cents per gallon of gasoline appeared to have been misinterpreted as calls for tax cuts based on statements by the Prime Minister and other Cabinet ministers.

Reiterating that the private sector was not suggesting that the Government forego revenue, especially given its debt and fiscal crises, he said the cap would provide a modest offset to Family Island gasoline prices that have already hit $7 per gallon amid volatile global oil markets that have been further upset by Russia's invasion of Ukraine.

Pointing out that Family Island business and living costs have always been higher than Nassau's, Mr Hutton told this newspaper: "Fuel is up at $7 a gallon here. You name it, it's a huge chunk out of people's pocket books now. It's up 70 percent from a year ago....

"We're still all for it. All the Family Island Chambers where gas prices are significantly higher than they are in Nassau or even Florida. Every cost in the Family Islands is significantly higher than they are in Nassau. It's just that we still believe that it's a good proposal, or good suggestion, regardless of who else is doing it. In the US there are several states cutting back on gas taxes to help the consumer."

Prime Minister Philip Davis QC, and Senator Michael Halkitis, minister of economic affairs, have both argued that comparing The Bahamas' response to soaring gasoline prices with that of Barbados is misleading because the southern Caribbean nation made adjustments elsewhere in its budget to offset the revenue foregone by cutting fuel-related taxes. The Bahamas, they said, would have to find similar compensating revenue elsewhere if it followed suit.

Others have also suggested that capping VAT on fuel would have minimal beneficial impact for consumers and businesses given that the savings would be measured in cents or a small dollar amount. With fuel prices currently over $6 per gallon in Nassau, and VAT at 10 percent, the likely savings per gallon from a 45 cent cap would be between 15-20 cents.

"We weren't comparing ourselves to Barbados or anything," Mr Hutton argued. "We were just saying a cap would be a good idea. It doesn't reduce the Government's revenue. It just slows or caps the increase at a higher level than it was before. Maybe they misunderstood what we were proposing. We said 45 cents per gallon.

"What's going to happen is that the more expensive it gets, the less gasoline will be bought, and the lower tax revenues will be. They need to look at 'economics 101' on this kind of stuff. If it gets too expensive people will not use it, and revenues will be cut back. If we can maintain it at an optimum level by implementing a VAT cap, people will cut back somewhat but still buy it."

Mr Hutton spoke before Simon Wilson, the Ministry of Finance's financial secretary, told last week's media briefing by the Prime Minister's Office that the 54 cent per gallon margin earned by gas station retailers on gasoline sales was "kind of low" compared to most other Caribbean nations.

Indicating that adjustments to retailers' Business Licence fee calculations could be among the relief provided by the Government, Mr Wilson said Bahamas Petroleum Dealers Association (BPDA) members were seeking a permanent solution to their woes rather than just "a band aid" that would see them facing the same squeeze whenever global oil prices soar again.

Confirming that the dealers and government will meet again, possibly as early as this week, with the former to "provide us with some more information on the options available", Mr Wilson said the Davis administration is seeking to provide what support it can without "adversely impacting the public" via even higher gas prices.

"Everything is on the table," Mr Wilson said. "There's no easy solution. That was one of the issues that were raised by the retailers yesterday in terms of some type of tax relief. It's a fixed margin. As fuel prices increase, their operating margin has now gone down in some cases to less than 10 percent; their gross margin. They have employees, they have overheads and so forth."

Reiterating that it was "a balancing act" between ensuring gas station retailers earn a return on their business without penalising consumers via higher gas prices, Mr Wilson said one proposal put forward was an increase to the price-controlled 54 cent margin.

The other, he added, was the Business Licence, which is based on gross turnover. While the gas station operators enjoy a "concessionary rate", as a high turnover/low margin operation they are penalised by how it is calculated. When oil prices soar, their turnover goes up because of higher fuel costs but net revenues stay the same. As a result, they end up paying more in Business Licence fees.

"It gives the impression revenues are high, but revenues are tied to the 54 cents they get," Mr Wilson added. "There were discussions around that, there were discussions around what type of support the wholesalers can provide in this environment....

"It was an open and frank discussion. What they really wanted from the Government was to say we don't want a band aid; we want a permanent solution. Yes, fuel prices are going to trend down eventually. But we want a permanent solution. We don't want a band aid where we do a quick fix here and two years from now, three years from now, we're back here trying to find out what is the right solution."

Michael Halkitis, minister of economic affairs, has already ruled out increased margins for gas station dealers as “a non-starter” at this time. The only thing within the Government’s power to change is the industry’s price-controlled, fixed margin structure and the amount of tax it earns on every gallon of gasoline and diesel sold, which makes the industry a volume-based sector. Business Licence fees, too, it can also seek to adjust.


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