The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian marinas are seeking clarity on whether the 10 percent VAT on foreign yacht charter contracts will be levied on pre-existing deals come July 1 amid fears this will be “a tough pill to swallow”.

Peter Maury, immediate past president of the Association of Bahamas Marinas (ABM), told Tribune Business that the sector and others involved with the boating/yachting trade were seeking urgent clarification given concerns that foreign yacht charter clients could be hit with a total 20 percent increase to the price of already-signed contracts.

Besides the new VAT levy, which accompanies the Budget and is due to take effect from July 1, he explained that yacht brokers have been forced to increase the advance provisioning allowance (APA) charged to charter clients by between 5-10 percent as a result of fuel and food price inflation.

That has resulted in increased prices for charter contracts already signed. And Mr Maury said marinas were further alarmed at the prospect of 10 percent VAT being added to the cost of these charters, on top of the APA hike, if existing agreements - which usually agreed months in advance - are not grandfathered in and allowed to stand as is.

The industry thus wants guidance on whether pre-existing contracts signed prior to July 1 will be honoured as is, without any VAT levy, and only those signed after this date will attract the tax, or if the 10 percent tax will now be added to all foreign yacht charter contracts regardless/

“A lot of these charter contracts are booked a year in advance,” Mr Maury told this newspaper. “If you are planning a week’s charter on a 100-foot boat you do that way in advance. A few people do scramble to book charters, but a lot of the business is already agreed to at rates that exist.

“We haven’t heard back whether contracts in existence prior to the implementation of VAT on July 1 are going to be exempt or have the 10 percent. We’ve asked but I think maybe they’re still deciding. We’ve heard from the industry, talking to captains, talking to brokers, that it will be a tough pill to swallow. You have signed a contract, and now have to pay 10 percent more for fuel and 10 percent in VAT. We don’t want to scare everybody to death.”

Foreign yacht charters and their guests face a 350 percent increase in their effective tax rate come July 1, with this moving from 4 percent to 14 percent with the addition of VAT’s levy on the contract price. They are already supposed to pay a 4 percent fee in this sum to the Port Department, but collection of this sum has long been regarded as a weakness and significant evasion and avoidance is thought to have occurred.

Viewing this sector as exploiting The Bahamas’ ocean and natural resources without paying its fair share, the Davis administration has thus moved to increase taxes significantly. It is also seeking to create a level playing field for Bahamian charter and water-based tour/excursion operators, who have to pay VAT, Business Licence fees, NIB contributions and Immigration fees that their foreign counterparts do not.

Mr Maury, though, pointed out that the VAT implementation was occurring just as foreign yacht charter guests were being asked to pay more via the APA - a sum usually equivalent to 30 percent of the total contract - to finance the stocking of their vessels with food, fuel and other supplies.

“Most of the brokers have raised the APA another 5-10 percent to accommodate for higher fuel costs. This is why this 10 percent VAT they’re putting on top is going to be a big shocker but it is what it is,” he told Tribune Business. “I’m hoping we can get past that, people will see the value in coming here and pay the extra fuel cost and worry about it after the summer’s over.

“People want to travel. Given that they’ve been so restricted in everything else, people will pay for it. That’s what we’ve got to hope for.” However, Mr Maury recalled facing an office of “outraged families” on a past July 4 US holiday weekend after Bahamas Customs increased its fees without warning to the boating/yachting community, and said he hoped this could be avoided with VAT’s introduction on yacht charter contracts.

While the ABM had sought to suggest alternatives to VAT’s implementation, including the development of a private yacht registry prior to its introduction, the Government has proceeded with its plans. “Typically they estimate the APA for yachts to be around 30 percent of the total contract,” Mr Maury added. “Now they’re having to add another 5-10 percent to compensate for inflation with fuel and groceries.

“I’m talking signed contracts with APAs and deposits in. Obviously you do not want to go back to the clients, and with 10 percent VAT, and say you need another 20 percent on top. That’s the only part that’s kind of scary. I don’t want to be a doubting Thomas, but I I feel there are other ways to improve the infrastructure to be competitive with other countries....

“I hope they’ve made the right decision. We have to leave it in their hands. We are the owners of the risk and the investment. Let’s accept contracts written under the terms they were written under.”