• ‘Nothing can stand in way of recovery’
• GB Chamber chief urges ‘more clarity’
By NEIL HARTNELL
Tribune Business Editor
Some 98 percent of business and home owners in Dorian-devastated Abaco say reinstating 10 percent VAT on construction services will “significantly influence” whether they rebuild or not.
A rapid-fire survey conducted by the Abaco Chamber of Commerce, conducted once it became known last week that the tax break had not been extended beyond New Year’s Eve 2021, revealed more than three-quarters of respondents - almost 77 percent - were either “very concerned” or felt its loss would prevent them from being able to afford their reconstruction plans.
Some 20.51 percent - over one-fifth - feel into the category of being unable to rebuild. The survey also found 71 percent were financing post-Dorian rebuilding from their own pockets, with just 16 percent having access to bank/debt funding and the remaining 13 percent able to rely on proceeds from insurance settlements.
Asked about the value of their reconstruction projects, some 66 percent or two-thirds said these were valued at $500,000 or below, with just one-third above this threshold. And the Abaco Chamber’s survey drew 100 percent unanimous responses when persons were asked if construction services should remain VAT-free and if they planned to use such services within the next 12 months.
The valuations provided, while only coming from 40 respondents, raise questions about the Ministry of Finance’s assertion that removing the VAT relief on construction services will only impact a minority of wealthy homeowners who, it implied, would be able to afford the extra 10 percent levy without suffering undue hardship.
The Abaco Chamber’s survey results, which have been seen by Tribune Business, came as Greg Laroda, the Grand Bahama Chamber of Commerce president, called on the Government to provide greater “clarity and transparency” around the decision to end the construction services VAT relief so that persons can determine if the move is justified.
Pointing out that “money and capital are in short supply” on the Dorian-ravaged islands of Grand Bahama and Abaco, he added: “We don’t want anything to stand in the way of recovery.”
“A lot of folks are still haven’t been able to complete repairs to their homes, businesses, investment properties since Dorian for various reasons,” Mr Laroda told this newspaper. “We know that the economy is down. We know there were issues related to the pandemic that would have slowed even the process of acquiring materials and other resources to do repairs.
“A lot of these repairs remain outstanding. To the extent we can continue to incentivise that, it makes the road to recovery that much shorter. I’ve seen the Government say where it will not have much impact, and arrangements on a one-by-one, case-by-case basis can be made.
“We need to dig into that more, and ask what that means. I would not want anything to happen that stands in the way of recovery in the economic zones of Grand Bahama and Abaco. We have to work with the Government and business community to see where the pinch points are, what is causing disadvantage to them, and get the Government to work with us so they can meet us half-way.”
The latest Disaster Reconstruction Authority (Special Economic Recovery Zone) Order 2022, which took effect on New Year’s Day but was only released last week, revealed that the VAT ‘zero rating’ treatment for construction services effectively came to an end on New Year’s Eve.
Services provided in 2021 must have been invoiced before year-end, and paid in full by end-March 2022, for the VAT relief to apply. The end to the ‘zero rating’ means home owners and businesses in Abaco and Grand Bahama will now have to pay 10 percent VAT on contractors’ labour and other service costs.
This creates a potentially significant hike in rebuilding costs as labour typically accounts for around 50 percent of the contractor’s price. With all VAT-registrant contractors now having to charge their Abaco and Grand Bahama customers the 10 percent levy, this could deter persons from hiring such tradespersons, potentially impacting the quality and standard of reconstruction.
The Ministry of Finance, in a statement responding to the outcry, pointed out that VAT and other tax breaks on physical goods imports, such as building materials; furniture; furnishings and appliances; hardware supplies; electrical fixtures and materials; and plumbing fixtures and materials had been extended until December 1, 2022.
However, it seemed to imply that the reimposition of VAT on construction services would only impact a small minority of wealthy homeowners who could afford to pay the tax. “It should be noted that the vast majority of persons in the impacted areas, in repairing their property, will purchase materials and employ labour to effect the repairs,” the Ministry of Finance said.
“With the extension of the SERZ Order, those persons will not be affected because building materials will remain tax free and VAT is not charged on labour in these circumstances. The removal of the zero-rating on construction services is expected to impact a minority of cases, mostly high-end properties.
“The Ministry of Finance will continue to process applications for relief under the SERZ on a case-by-case basis and consider any application for special consideration on its merits.”
Pro-government Internet and social media blogs subsequently leapt to its defence, asserting that only the likes of foreign second homeowners at Baker’s Bay would be impacted by the reinstatement of VAT and construction services while suggesting that the Government was giving away too much in tax concessions and needed to safeguard its revenues.
However, the Abaco Chamber’s survey results, while taken from a narrow base, suggest that middle class Bahamian home owners and businesses will also be impacted by the move. And Mr Laroda reiterated that anything which “slows up the recovery process” should be cause for concern.
“Money and capital are in short supply in the recovery zones, so anything that adds to the cost of recovery we ought to be very concerned about,” he told Tribune Business. “We need more clarity from them [the Government] on why they feel that is the case. There needs to be more clarity and transparency on that.
“On the surface that appears not to be the case,” Mr Laroda said of the Government’s assertion that only wealthy homeowners would be affected. “We need more clarity if that is what it is. We need to see in more detail what they mean by it will only affect a few persons, and if that is not the case we will lobby them to reconsider or reverse course as we don’t want anything to stand in the way of recovery.
“We want more clarity, and to see what the impact and potential impact is and, if it stands in the way, we need the Government to revisit it and remove anything that slows the process.”
Ken Hutton, the Abaco Chamber of Commerce’s president, said: “It’s very critical that the VAT concessions be put back in place on construction services at least for another year or more. We’ve had VAT reinstated on breadbasket items. That has taken a big chunk out of people’s income that they could have used to rebuild.
“The price of building materials has shot back up since December, the supply chain is causing havoc with people’s ability to supplies in, and the ongoing labour shortage makes people uncertain when they will have labour. Having this put on top of all that is really encumbering Abaco’s ability to rebuild. It’s just one thing after another.”
Mr Hutton told last week’s Bahamas Business Outlook conference that lumber prices had increased by 30 percent since mid-December and show no signs of “slowing down”, while plywood costs had rapidly increased from $30 to $50 per sheet. Windows and doors now take 14-16 weeks from order to delivery.
The Abaco Chamber’s survey revealed that 44 percent of respondents believe their rebuilding efforts will take more than one year.