Hotel sector representatives that complain about value-added tax (VAT) are simply “greedy and never satisfied”, according to a top regional VAT expert, who argued that it is the quality of the product and not the rate of tax applied to it that will determine a destination’s competitiveness.
Speaking at an Institute of Internal Auditors (IIA) Bahamas Chapter meeting, where he delivered a presentation on the topic “Mitigating VAT implementation risks”, Mark Shorey said it is only right that the burden of taxation is also carried by tourists visiting a country as it is by locals.
Meanwhile, the internationally-recognized tax consultant said that hotels throughout the region are already subject to a wide range of tax concessions.
Shorey, a senior manager with Ernst and Young (Barbados) and managing director of Cover Point Services Inc, an indirect tax consultancy, who has 45 years of experience in this field and also played an integral role in the Barbados government’s VAT implementation team, made his comments during a question and answer session at the IIA meeting at the British Colonial Hilton yesterday, after being asked for his thoughts on the tourism sector’s concerns about VAT in the Bahamian context.
He said: “There’s a belief that tourists look at every single tax they pay. Most of the issues relating to tourists is to do with the perceptions of locals working in the business. I say this from experience. I was part of the discussions over taxation – every sector wanted to be in a zero-rated position. They wanted to pay no tax, and if that happened there’d be no revenue.
“People come to The Bahamas. There’s this fear of people not coming, but people will come because it’s a good product. People are coming for the product, not the tax. If the product deteriorates that is when you have a problem.
“There was a survey of British tourists (coming to some of the southern Caribbean islands). Most of the people are not concerned about VAT, they are concerned about airline fares. So basically there’s a lot of fear among hoteliers.”
“A lot has been done for hotels throughout the region,” he said.
Noting that there is presently a threat of a class action law suit against the government in Barbados over a decision to grant additional tax concessions to Sandals in that country, which has led to a discussion by the government of whether it must now “level the playing field”, Shorey commented that it appears hotels are “greedy and never satisfied”.
“The country has to operate and not only locals have to pay the tax burden for health, education; some of the tourists have to pay too.”
The Bahamas Hotel and Tourism Association has come out strongly against a 15 percent VAT being introduced on July 1, 2013, arguing that it will be seriously detrimental to the price competitiveness of the tourism sector and counterproductive to the government’s revenue-raising objectives.
Speaking on the subject of the VAT rate, Shorey said that this should be the subject of an “informed” decision.
“When VAT was supposed to be introduced in 1995 (in Barbados), I made a comment to the media about the rate and said I know of no study that was done. When the prime minister realized no study was done, he commissioned a study. So what I would say is that by now the prime minister should’ve done a full study on VAT, taking all things into consideration, the taxes it will replace, the base for the tax which is now broad in incorporating goods and services, and any other factor that will affect the rate, and make a determination based on informed information, objective data. It’s important that you make a decision based on that.”
Shorey added that based on the revenue raising success of VAT in the first six months to a year, the government can then make further decisions on how it can adjust the system.
“So rather than fearing the VAT, what you need to do is ensure that the system starts with a team that will enforce it properly, and based on the first year’s findings it gives the government the opportunity to look at it and see if there are any other areas they can look at to ease taxation, especially on the poor. There are ways you can address its regressivity based on the yield of VAT.
“These are things that worked well in Barbados and I believe the Barbados experience is one that would stand The Bahamas in good stead with respect to VAT implementation,” said Shorey, who added that he was speaking in his personal capacity.
The Nassau Guardian
Published: March 21, 2014