The Bahamian tourism sector has reached the edge of a price level “precipice”, garnering just 35 percent of its potential market share due to price increases and standing to lose a further 15 per cent if the cost of a travel package increases by just $200 more, according to a key consultant to the sector.
Frank Comito, former Bahamas Hotel and Tourism Association (BHTA) executive vice president, and current consultant to the organization, suggested that it behooves all involved to ensure that The Bahamas does not go over the edge of a “cliff” as far as its price competitiveness is concerned, as this would not only hurt the industry, but would be counterproductive for government revenue collections.
He emphasized that it is this consideration which is driving the industry's vehement opposition to value-added tax (VAT) in its current form, rather than the need to conserve what many consider to be large profits, arguing that in fact hotels in The Bahamas have been “independently verified” as being the “lowest in the region.”
He was speaking on the topic of value-added tax (VAT), along with Atlantis Senior Vice President, Public Affairs and Retail Services, Ed Fields, on the Jeff Lloyd show on Guardian talk radio. Comito referred to soon-to-be-released data which Guardian Business understands was shared last week with BHTA members identifying a striking direct inverse relationship between price rises on holiday packages and visitor arrivals to this country in recent years.
Comito said: “VAT in itself isn’t a concern to us. As it was proposed back in November that’s a great concern to us; the level – the 15 per cent, 10 per cent on aspects of it. 15 per cent applying to various aspects of the business that had no exposure before. It adds to the cost of the business. We have already passed the threshold of competitiveness from a price standpoint. We’re actually right next to the cliff right now. I will show you the data. Comparatively we’ve priced ourselves to a point where the market share we can draw from continues to shrink because today, in particular, the consumer is price sensitive, so we believe we have to relook at the model because indeed everyone loses if visitor arrivals drop.
“ If visitor arrivals drop, government revenues drop and everyone loses. It’s not a matter of opposing fiscal reform, we seriously support fiscal reform. It’s proposing alternatives that are not going to have an impact on our competitiveness.”
Fields said that initial estimates indicate that VAT as initially proposed by the government would further increase the cost of the tourism product by 11 to 12 per cent.
“Then that precipice that we are talking about - we’re over that precipice. So when people are looking at that price comparison, well you could be a camel and know what you’re going to do. You’re going to go for the cheaper option,” he said.
Comito noted that data shows visitor arrivals to the Bahamas are already down 11 per cent since 2007, while lower-priced destinations such as Cuba, the Dominican Republic and Jamaica are up 32 per cent, 17 per cent, and 18 per cent respectively.
He claimed there is a “simply wrong” perception of the sector's contribution to date to the economy in the form of tax revenue, including among policymakers.
“It astounds me. I actually heard it from an MP recently that the hotels are paying nothing on duties. The only time a duty is exempt is on build-out or a major investment on a refurbishment. Every meal, every sheet, every glass, is dutiable, and that is generating massive amounts of revenue to the government.
“Then there is departure taxes, hotel occupancy taxes, casino taxes. It's just a real myth (that) the big guys raking in these huge profits, which is another fallacy. So it's just simply wrong. Some people in powerful positions who can influence people's thinking have spewed out this nonsense over the years and it negates the fact that the key is to get the activity going so you can generate the employment, generate the revenue which follows, which it has been doing over the years.”
The consultant pointed to several other recent contributors to cost increases for the sector, including rises in business license fees that saw small hotels' fees rise by 50 per cent, and larger ones by 250 per cent, a jump in hotel occupancy taxes from six to ten per cent and in departure taxes for visitors from 15 to 29 per cent, with a further increase planned. Fields said that on Atlantis' part, the business license fee increase resulted in an additional $8 million tax liability.
The effect of these costs, Comito added, is compounded by labour costs that are on average three to six times higher than those in competitor countries in the region, according to studies.
“We’ve got to recognize that that adds to our costs and our competitiveness,” said Comito, who added that while VAT has elicited vocal opposition, the sector has “not made a fuss” about these rises to date and remained relatively compliant in recognition of government's fiscal challenges.
Fields added that the government must recognize that private investors in the tourism sector have independently added to the tax base in the form of new hotel rooms, with a major increase soon to come on stream with the opening of Baha Mar.
The BHTA and other tourism stakeholders have commissioned a full study on VAT and its implications for the sector, and the possibility of other alternatives, due out in May.
The prime minister recently indicated that he is now planning to bring in VAT at rate lower than 15 per cent, but no final determinations have been announced.
The Nassau Guardian
Published: April 7, 2014