Bahamas Information Services Updates
Halkitis explains the VAT regime to Hotel and Tourism business owners
By Gena Gibbs, BIS
Apr 9, 2013 - 1:27:21 AM

State Minister for Finance, the Hon. Michael Halkitis explains how VAT will not affect the basic needs but complement the government's revenue collection process according to global standards (BIS Photo / Gena Gibbs).

Nassau, The Bahamas - Explaining to relevant stakeholders how the Value Added Tax (VAT) regime will apply to their Hotels and Tourism related businesses is the first step in fine tuning this reformed tax policy.

State Minister for Finance, the Hon. Michael Halkitis explained to stakeholders that the Government is aware that investors will need details in a timely fashion for financial year planning to include the most recent costs of doing business in The Bahamas. Minister Halkitis also explained the misconceptions of the VAT and dismissed the unsupported notions that this new tax will merely represent an added burden on all goods and services. He said it is simply not true that taxes are collected at each stage of the production and distribution process, which would result in taxes being layered upon taxes.

"Like a Sales Tax, the Value Added Tax is a tax on the sale of goods and services. Although the sales tax is only collected when a final sale to a consumer occurs, the VAT is collected at every stage of the production and distribution chain. This introduces checks and balances throughout the systems that are designed to minimize tax avoidance and to increase compliance," said State Minister Halkitis.

"Every time an item is sold from one person to another in the chain, VAT is charged by the seller to the buyer. However, the seller does not remit the full amount of VAT collected. Rather, he deducts from that amount any VAT that he paid on the materials and supplies that he bought to finish the product that he sells. He therefore sends VAT to the Government only on the value that he himself added to the product. Hence the name 'Value Added Tax'."

On April 4, the Ministry of Finance held a public consultation meeting with tourism sector stakeholders upstairs in the Rum Runner Room at the Sheraton Cable Beach Hotel on West Bay Street at 11 A.M. The stakeholders were concerned about whether the VAT would be added as a consumption tax in the purchase of the products before it reaches the customer or would the taxes be compounded in excise taxes or duties after the point of sale. Minister Halkitis  defined the difference between Sales Tax and Value Added Tax explaining that by the time the product is finally sold by the retail outlet to the consumer, the total VAT sent to the Government will be exactly the amount of VAT paid by the final consumer. He also said that at the end of the day, it is the consumer who pays the full 15% VAT, just as he would pay under a Sales Tax. The key difference is that fraud and non-compliance are much more difficult under a VAT than a Sales Tax.

Minister Halkitis said that the Ministry of Finance has already commissioned work on draft VAT legislation which they expect to have in hand before June of this year. Further, public consultations will begin early in the new fiscal year once the Government has concluded its internal review of the draft.

Halkitis also addressed the concerns expressed about the fairness of the tax – specifically the view that the VAT increases the burden on lower income groups that spend a greater percentage of their earnings on consumption. He dismissed this rumour by explaining that lower-income households will experience a tax free trade off as more of their expenditures are directed toward basic essentials, allowing the VAT to be structured to increase the progressive nature of our tax system and leave the basics untouched.

"In particular, the White Paper proposes exemption from VAT on products and services in a number of categories as follow: Goods that are currently duty-free under the Tariff Act, such as many basic food items; other products that, for valid social reasons, are now duty free such as medicine, medical supplies, baby products and computers and important services such as health and education," said Minister Halkitis.

From left to right members of the BHTA Executive Committee are Nina Maynard, Small Hotels Representative; Shavonne Darville, Vice President for the Family Islands; Glenn Sampert, Senior Vice President; Stuart Bowe, President; Finance State Minister Michael Halkitis; Patrick Drake, Vice President, Nassau-Paradise Island; Robert ‘Sandy’ Sands, Immediate Past President; Vaughn Roberts, Treasurer and Frank Comito, Executive Vice President (BIS Photo / Gena Gibbs).

"The base prices for these goods and services should therefore not be directly increased because of the VAT. It is important to note that even for services that are taxable under VAT, the proposed reduction in customs duty or excise taxes will lower the cost of such inputs to the establishments. This should be the case for many inputs to the hotel and restaurant sectors. This is also an important relief to the working capital requirements of operating a business in The Bahamas, which should create more opportunities for the startup of smaller firms" continued the Minister.

Minister Halkitis said that the bottom line is that efforts will be made to minimize the overall impact of the new VAT on the cost of living for the average Bahamian.

"Simply put, the government needs to increase its total revenue intake as a share of total economic activity through a tax measure that is more buoyant and with revenue yields that increase more closely in line with the growth of the economy. As our economy has grown, import duties have not shown this buoyancy because, with rising standards of living, a greater fraction of our incomes is being spent on services. By design, a VAT will bring more of these activities into the revenue mix," said Minister Halkitis.

"As to how the VAT fits into the existing array of taxes, it is for the most part a rebalancing process. We propose to significantly lower the average rates of customs duties and excise taxes on imports, add the 15% VAT to these goods, subject to the qualification and exception I will give shortly, and then impose this VAT on a range of services. It is our objective that the revenues from services that are being taxed will offset all of the taxes foregone from the adjustments to existing customs levies, and generate an additional net intake to help finance the government’s fiscal consolidation efforts."

Minister Halkitis said that the Ministry of Finance developed a package of complementary and fundamental tax reform proposals designed to attain a number of core objectives. This included realizing the introduction of the VAT by July 1st, 2014 and reductions in the import duty rates that will necessarily accompany The Bahamas’ accession to the World Trade Organization (WTO).

He said this also includes reductions in excise tax rates, which are already at relatively high levels, to compensate for the VAT and to leave total taxes payable on excisable goods unchanged. Minister Halkitis said the Government has considered a revamping of the Business Licence Tax as currently structured and the replacement of the Hotel Occupancy Tax with a VAT on hotel accommodations and on food and beverage sales within in hotels at a rate of 10 per cent.

"The VAT, I should mention is just one of a broader set of reforms to strengthen revenue administration and compliance, including the introduction of excise stamp on tobacco products, the modernization of customs, business licence and real property tax operations, and the centralization of non-customs revenue collection within a Central Revenue Agency," said Minister Halkitis.

State Minister for Finance, the Hon. Michael Halkitis explained his perspective on the Government's White Paper on Tax Reform. He also answered the business community's questions concerning the featured policies being crafted in the new Bahamian VAT system to create a compliance with global standards.

"The White Paper responds to a commitment made by the Government in the 2012/13 Budget Communication, when it was announced that we would address the issue of tax reform as a means of broadening the tax base to include both goods and services. The White Paper is designed to serve as the basis for extensive public discussions and consultations over the next several months. While VAT is in widespread use around the globe, we want to ensure that its key design and operational features are attuned to the Bahamian context," said State Minister Halkitis.

"I also want to stress that, as we move forward with implementation of VAT, we will place strong emphasis on cooperative efforts with the private sector. To that end, we will strive to develop partnerships with groups that will be closely involved in VAT implementation and operations. To date, we have had preliminary meetings with two representative groups from within your industry and with the accounting profession through the Bahamas Institute of Chartered Accountants. We plan to soon engage with the manufacturing sector, as well as wholesalers and retailers. I expect that meetings with other key stakeholders will follow in the very near future."

© Copyright 2013 by thebahamasweekly.com -