By NEIL HARTNELL
Tribune Business Editor
Bahamian retailers have until August 31 to adjust prices for the 12 percent VAT, with top government officials yesterday expressing confidence that the transition will "not disrupt" commerce.
Marlon Johnson, the Ministry of Finance's acting financial secretary, told Tribune Business that the extra two months was a "reasonable" extension that will allow large retailers - with thousands of shelf and inventory items to reprice - more time to meet the budget's requirements.
"This is just because we know there are retailers that have hundreds, if not thousands, of items to go through," he explained of the August 31 deadline. "They will be required to put signage throughout their establishments that the correct VAT will be assessed at the counter and on consumers' receipts.
"That gives them time to make the changes they have to. We have 'big box' retailers and supermarkets that have thousands of items to reprice. There's some who will get it done in time, but we want to be mindful of the necessary changes they have to go through. We felt it would be reasonable to them."
The VAT transition "guidance notes" were finally released to the Bahamian private sector at the weekend, giving various industries and individual businesses just one week to comply with the "fine details" of the budget's requirements before the 12 percent VAT rate comes into being on July 1.
Confirming the extra two-month transition granted to Bahamian retailers, the "transition notes" state: "If you conduct business as a retailer there are some challenges that we know that you will face in the repricing of items displayed for sale immediately after the coming into effect of the new VAT rates.
"You would be allowed to take any of the following measures until August 31 or otherwise as stated by the [VAT] comptroller. Although we expect you to exert every effort to ensure that your pricing is in keeping with the dictates of the VAT Act 2014 as amended, you will be allowed unchanged price tags and labels through to August 31, 2018, on condition that you display clear signs within your establishment(s) that indicate that the price tags may reflect the pre-July VAT rates, and that any adjustment will happen on the register."
While retailers are to charge 12 per cent VAT from July 1 "without exception", individual items can be displayed without price tags. "You may display items supported by bin or locator labels, or signs showing the VAT exclusive price, the associated VAT or the fact that the item is zero-rated and the VAT inclusive price immediately adjacent to the goods offered for sale," the notes add.
Many Bahamian businesses were yesterday grumbling about the late release of the 'transition' guidance, several telling Tribune Business this was vital to clearing-up their remaining questions and enabling them to complete system and business model adjustments prior to July 1.
"My counter to that is it was announced since May 30 that the VAT rate would be changed, and talking to retailers, wholesalers and merchants many of them are advanced in their plans and adjustments," Mr Johnson told Tribune Business.
"We didn't anticipate persons would wait to get guidance from us. We feel they'll make it, especially as they are not having to deal with every single price tag. Most of those I've spoken to have planned or made the necessary changes to be ready.
"In every change there are questions to be answered," the acting financial secretary continued, "but we anticipate it will go fairly smoothly. The merchants have been through it before, and have competent IT staff to make the changes to their systems.
"All things considered, we feel reasonably confident that there won't be any disruption to activity and commerce come July 1." Mr Johnson also reaffirmed that the VAT 'zero rating' of all breadbasket food items and medicines (prescription and over-the-counter drugs) will take effect from August 1, giving retailers and pharmacies time to adjust for these tax exemptions.
However, the VAT 'transition notes' indicate that the Government has made no concession to developers over property that remains unsold after June 30, 2018. Changes to the real estate tax structure mean that all property sales/purchases will now be treated as VAT 'exempt', meaning that developers can no longer recover the tax paid on their 'input' costs.
"If you are a developer you may have, or be in the process of, acquiring real property. Transactions involving the sale or purchase of real property are now exempt as of July 1, 2018. Stamp tax is now, however, charged on all such transactions," the transition notes state.
"All of the VAT you incur in the process of your development is not recoverable, as VAT on any taxable supplies in relation to an exempt supply is not available as an input tax credit deduction."
Developers had previously warned such tax treatment would mean "millions of dollars are on the line" as it would be "impossible" for them to claim back the 12 per cent VAT on their input costs.
The former Christie administration changed the ten percent Stamp Duty levied on real estate sales to accommodate the current VAT rate, splitting this 7.5 percent/2.5 percent between VAT and Stamp Duty. But the 2018-2019 budget goes back to the ten percent stamp duty on all real estate purchases over $100,000.
This prompted warnings of increased real estate costs for both Bahamian and international buyers. Developers currently 'net off' the VAT they pay on construction materials, and the likes of contractor, engineer and architect bills, against the 'output' tax whenever a property is sold.
But the Budget's altered tax structure, by eliminating VAT, robs developers of the ability to claim back already-paid input tax, thus saddling them with a multi-million dollar increase in development costs that will likely be passed on to buyers.
Edison Sumner, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chief executive, told Tribune Business that queries had already been raised by the private sector in relation to how the 'transition guidance' deals with real estate transactions.
"We received the transition notes from the Government over the weekend, and immediately distributed them to the private sector," he said. "We've already got some questions back asking for clarity on some components of the rules, the treatment of real estate transactions, for example. That's one of the ones that has come back to us so far."
With less than a week left before the 12 per cent VAT rate's implementation, Mr Sumner said the Chamber was seeking urgent feedback from its members and the wider business community so that any final queries could rapidly be passed to the Government for a response.
"As the business sector goes through the transition notes and questions arise on areas that are unclear and uncertain, we're asking them to write back to us so we can compile them and put them to the Government," Mr Sumner added.
"Since we are pressed for time with less than a week before the implementation, it's important for everyone to have a level of comfort knowing they're operating on an extremely tight timeline."
Mr Sumner said the private sector had already expressed its concerns over the limited time allowed to adjust for the new VAT rate and exemptions, but conceded that the Government had given key sectors - such as the retail, hotel and construction industries - "breathing room" in implementing the changes.