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June 22, 2018 Bahamian House of Assembly passes 2018/19 Budget to increase VAT Rate The Bahamian Government in its 2018/19 Budget Communication proposed an increase in the rate of Value Added Tax (VAT) from the current 7.5% to 12%, effective 1 July 2018. The rate increase and other changes to the VAT regime were announced on 30 May 2018. On 18 June 2018, the House of Assembly passed the 2018/19 Budget Communication. The Senate debate is currently taking place. The Government has since published the Value Added Tax (Amendment) Bill, 2018, as well as the Value Added Tax (Amendment) Regulations, 2018. These documents highlight the changes achieved through the Budget Communication. Along with the increased rate of VAT, a high level overview of the changes include the following; first the Bill seeks to clarify and expand the role and powers of the VAT Comptroller to facilitate a more efficient administration of the tax. The Bill also outlines changes to the penalties and fines regime so that fixed penalties may now be automatically applied rather than the requirement to go through a quasi-judicial internal process under the old system. The key changes are those which amend the First and Second Schedule of the principal act. In summary, this includes a clause to apply the zero rate of VAT to breadbasket items. A detailed list of items is outlined in the Bill and includes; butter, bread, mayonnaise, grits, cheese, corned beef, evaporated milk, margarine, rice, flour, tomato paste, baby formula, soup, broths, baby food, powdered detergents, condensed milk, soaps, fresh milk and mustard. The zero rate will also apply to medicines and medicinal drugs (as described in the Bill) along with fund-raising activities and events undertaken by charitable or non-profit organizations. These changes are to take effect 1 August 2018. Other changes include the exemption from VAT on all transfers of real property, residential electricity bills at or under $1001 and water bills at or under $50. Liability insurance contracts, marine, aviation and transport insurance contracts, motor vehicle insurance and insurance contracts on dwellings will also be exempt of VAT as of 1 July 2018. Although the timeframe provided for businesses to make the requisite system and pricing changes is narrow, there has been no official word on any extension being granted to the majority of businesses in order to update systems and contracts to account for the new VAT rate. However, the Government has elected to afford the tourism and hospitality industry an extension. Per a Ministry of Tourism Press Release, the Government has come to an agreement that all hotels, resorts, tour operators, attractions and other key tourism related establishments along with the respective international third party affiliates can continue to apply the 7.5% rate to certain bookings. The Government has confirmed that detailed guidance outlining all transitional measures will be issued in the coming days. It should be noted that this Alert focuses on the VAT changes however, the Budget Communication also proposes changes in respect of Real Property Tax, Customs duties, Excise duties, Business License fees and Stamp Tax. ——————————————— 1 Currency references in this Alert are to BSD. ——————————————— For additional information with respect to this Alert, please contact the following: Ernst & Young Ltd. (Cayman Islands), George Town, Cayman Islands
Ernst & Young, Nassau
——————————————— PDF version of this Tax Alert
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