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‘About time’ cruise lines private islands face VAT

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

BAHAMIAN tour operators yesterday asserted it is “only fair” that VAT be levied on the goods and services bought by passengers on the cruise lines’ private islands, adding: “It’s about time.”

Neal Watson, owner of Neal Watson’s Bimini Scuba Centre, told Tribune Business it is “about time they charged VAT on these private islands” and place Bahamian-owned businesses that cater to cruise passengers on a taxation level playing field with the likes of Carnival and Royal Caribbean.

Speaking after Tribune Business revealed the Government wants to levy 10 percent VAT on all goods and services purchased by passengers on the cruise lines’ private islands from March 1, Mr Watson said: “I have to collect VAT and still have to pay VAT. Every person I take diving or snorkelling off of a cruise ship, I have to pay VAT out of their tours already.”

And Nicholas Pinder, Born Free Fishing Charters’ general manager backed Mr Watson by arguing it is “only fair” that the cruise lines charge and collect VAT on the Government’s behalf as Bahamian companies already do.

Bahamas-based tour and excursion providers, which operate outside the cruise lines’ private islands, have always had to include VAT in the price charged to passengers since the tax was introduced in January 2015. But, to-date, the same products and services offered on the private islands have not attracted VAT, thus placing Bahamian-owned companies at a competitive disadvantage when it comes to pricing.

A “guidance document,” from the Department of Inland Revenue obtained by this newspaper reveals that, within weeks, the tax authorities plan to change the treatment of goods and services supplied to mil- lions of tourists who visit these locations annually by levying VAT on all such transactions at the standard 10 percent rate. The Bahamas received 5.4m cruise visitors in 2019, many of whom would have visited private islands.

Among the private islands that stand to be impacted by such a move are Royal Caribbean’s Perfect Day destination at Coco Cay in the Berry Islands, its global showpiece attraction; plus Mediterranean Shipping Company’s Ocean Cay location; Disney Cruise Line’s Castaway Cay and Lighthouse Point; and Holland America’s Half Moon Cay.

Simon Wilson, the Ministry of Finance’s financial secretary, said of the ration- ale for the changed tax treatment: ““When we implemented VAT originally we were under the impression given to us by the cruise lines that any commercial activity on the private islands was an extension of the package purchased [by passengers] on ship - they were indistinguishable. That’s not the case. It’s a different commercial experience.

“It has grown significantly. The private islands are much bigger, much more diverse in their operations, and they actually compete with Bahamas-based businesses for onshore excursions.” The Government’s top financial official added that the move is designed to place the cruise lines and Bahamian businesses who cater to their passengers in non-private island destinations on a taxation level playing field as both will now have VAT added to their charges.

“Why should the cruise lines be allowed to rent a chair on the beach and pay no VAT while the Bahamian has to pay VAT and Business Licence?” Mr Wilson asked. The Department of Inland Revenue has given the cruise industry until February 16 to provide feedback on the potential impact from the change.

Given that VAT’s imposition will likely mean the total price charged by the cruise lines to their customers will increase, it is thought likely the industry will push for greater time to adjust to the changed treatment on the basis that most cruises are booked 12-18 months out. This means they will be unable to adjust pricing to accommodate the VAT, and could end up having to absorb it themselves.

The Department of Inland Revenue’s guidance note on VAT for cruise lines and their private islands, dated January 15, 2024, said it replaces all previous advice and added: “The Department of Inland

Revenue (DIR) intends to implement this guide with effect from March 1, 2024. The guide is being circulated to the industry for written comments to be provided to the DIR no later than Friday, February 16, 2024.”

It reaffirmed that it now considers the supply of goods and services to cruise passengers on the private islands to be VAT- able transactions, meaning that they should attract the 10 percent levy, since they take place within Bahamian territory.

“Therefore, where goods and services are provided or sold on-island, the place of supply is considered to be in The Bahamas and the supply of these goods and services is subject to VAT at the standard rate. This is an important change in the DIR’s position as it relates to the VAT treatment of supplies made on private islands and by cruise lines,” the Department of Inland Revenue confirmed.

The cruise lines themselves will have to become VAT registrants if they either own a private island or generate more than $100,000 in annual taxable sales from such destinations. If an island is owed by a separate legal entity, then economic activity and transactions generated by it as well as the cruise line could be VAT-able.

Cabana rentals, shore excursions or charging cruise companies for passengers’ access to on-island services would be caught by this, as would “the purchase of on-island recreational" activities.

Comments

The_Oracle 1 week, 6 days ago

And will inland revenue have access to the cruise lines books like they have to all Bahamian businesses? I seriously doubt it. It would show the government too much.

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