By NEIL HARTNELL
Tribune Business Editor
The government is being urged to use a three-year system of VAT credits to rescue Family Island businesses and encourage investment by their owners in a bid to revive these economies post-COVID-19.
The proposal is contained in documents submitted to the government and its Economic Recovery Committee by the Eleuthera Chamber of Commerce, which says it is "convinced" that "the Family Islands offer The Bahamas the greatest opportunity for recovery following the pandemic".
Basing this on the total absence of Family Island COVID-19 cases (apart from Bimini), the Eleuthera Chamber added that their sparse populations were made for social distancing protocols while also often attracting "higher-end clientele" through a tourism product geared towards boutique resorts, second homes and vacation rentals.
These segments of the tourism market, together with private aviation and boating, are seen as the ones likely to rebound quicker post-COVID-19 than the likes of the cruise industry and New Providence mega resorts, and the Chamber paper suggested many Bahamians "would relish the opportunity to live and work on the Family Islands" due to cheaper real estate prices and the "simpler, quieter life".
To stimulate economic recovery and investment, it called for the Government to introduce a 36-month system of VAT credits targeted specifically at Family Island entrepreneurs to encourage them to hire and expand their businesses.
"Bahamian businesses need to retool if they plan to succeed in the changing global landscape. The upgrades needed are costly, and many businesses cannot afford them given the current tax regime," the Eleuthera Chamber argued.
"Additionally, more than 75 percent of Eleuthera Chamber of Commerce members who recently participated in our COVID-19 impact survey noted that they experienced revenue decline of 90 percent or more as a direct result of the measures imposed in response to the pandemic. If existing Family Island businesses are going to recover, The Bahamas government will need to implement various measures to stimulate the economy."
The Eleuthera Chamber urged the Government to allow all businesses to use a VAT credit "for capital investments or loan repayments for the purpose of improving their company's technology, physical plant, infrastructure, developing delivery programmes and increasing energy efficiency".
Suggesting that this be accompanied by the waiver of import tariffs on any capital equipment, it added: "Special consideration ought to be made for businesses on the brink of collapse. It is proposed that, for these businesses, the Government also consider utilising the VAT credit for inventory, rent, and operational expenses.
"It is suggested that the VAT credit be offered to all existing businesses on the Family Islands that meet the requirements outlined for a period of 36 months This, we believe, will help Family Island businesses make necessary investments or repay mortgages."
The Eleuthera Chamber added that the amount of VAT credit made available could be reduced progressively, dropping from the full 100 percent in the first year to 75 percent in the second and 50 percent in the third. To qualify, it said companies had to be registered with the Department of Inland Revenue and possess a valid Taxpayer Identification Number (TIN), as well as proper Business Licences and other documents.
"It is suggested that a domestic investor investing in a business on a Family Island with a capital investment of greater than $100,000 receive a VAT 'rebate' in support of recovering a maximum 50 percent of the total investment over a five-year period not to exceed 50 percent of its total VAT due to the Bahamas Government in any period," the Eleuthera Chamber said.
Whether the Government would go for such a wide-ranging incentives initiative is unclear especially since the Public Treasury will be desperate for every cent of revenue it can get amid the continued tourism shutdown and ongoing COVID-19 restrictions.
Nevertheless, the Eleuthera Chamber also called for the Government to stimulate real estate, construction and associated industries by eliminating the 10 percent VAT transaction tax on all Family Island purchases by Bahamians over the next 24 months.
It recommended that the tax rate by halved for foreign purchases over the next year, along with a 20 percent cut to the real property tax rate for three years provided that construction starts within a year of the acquisition and is completed within the 36-month time period.
"Construction on Family Islands must be stimulated in order to create the economic activity void of tourism for at least the next 24 -36 months. To this end, we would like to suggest that all construction materials be imported Duty and VAT-free to any Family Island for the next three years," the Eleuthera Chamber added.
Besides reducing the financial burden on the National Insurance Board (NIB) and the Government, the Eleuthera Chamber said its proposal would boost employment and economic activity as well as ensuring the "redistribution of the Bahamian economy through encouraging businesses in Nassau to move to the Family Islands to take advantage of the tax breaks".
It added that the qualifying criteria for the 'VAT credit' would also help to expand the tax base through more registered companies once the COVID-19 pandemic is over.