Tuesday, October 1, 2013

Value Added Tax (VAT) exempt companies

No industry VAT ‘zero rated’ except exporters

Domestic travel will not have VAT added

Guardian Business Editor

Domestic and international transportation, educational, medical and dental services, as well as some financial services, sales and rentals of residential homes and certain bread basket items​,​ will all be VAT exempt, Guardian Business can confirm.

While some of these areas were anticipated as likely to be VAT exempt in the government’s white paper, others were not, including domestic and international travel. This includes both air travel and taxi and bus services, Guardian Business understands.​

International travel would be VAT exempt if purchased through a local supplier of travel services.

This selection of VAT exempt services and goods was revealed by VAT consultants at a recent meeting between the government’s VAT personnel and the Bahamas Society of Engineers.

​It adds to what is already known about the way in which financial services will be treated under the regime, including that most commercial bank services ​would be sold without VAT added, as would health and life insurance, while property and casualty insurance would be sold with VAT added.

​The VAT consultants confirmed that no industry, except exporters, would be categorized as “zero rated” under the VAT regime.

While VAT exempt companies would not have to charge VAT on goods or services sold, they would pay VAT on inputs. Unlike VAT registrants, that could not claim back credits on those inputs. Zero rated providers would not have to charge VAT but would also be able to collect VAT back from the government on inputs.

Exporters, as businesses which by definition sell goods outside The Bahamas to

non-Bahamians who are not targeted by our revenue regime would be encouraged to remain competitive by being given the opportunity to reclaim tax on inputs into their production processes despite not collecting VAT from their purchasers.

Yesterday, Randy Butler, president of Sky Bahamas, a domestic and internationally-active Bahamian airline that services destinations both within The Bahamas and in Florida, said that while he would be happy not to have to add a 15 percent VAT charge onto tickets sold to Bahamian travelers, he cannot say for certain if this category will benefit the industry.

Noting that aviation fuel is currently subject to significant taxation, Butler said he could only make an ultimate judgment on how the VAT exempt category would work out for the airline once he knows if there would be upwards or downwards adjustments to taxation charged on fuel and maintenance-related parts.

“I may have to increase the cost of tickets anyway due to increased input costs. (Being VAT exempt) sounds good but I need to see what my vendors and my costs will be. I may automatically have to pass that on; I dont know how it will pan out,” said Butler.

September 30, 2013