“No, you won’t,” says Minister Halketze
• Foreign yacht charter tax rate to triple
• The sector gets “unexpected gains at our expense”
Written by Neil Hartnell
Business Tribune Editor
The president of the Association of Bahamas Marinas (ABM) warned yesterday that reforms to increase the tax rate on foreign yachting charters by more than threefold will “kill” an industry that last year directly pumped $122 million into the economy.
Peter Morey told the Business Tribune of the government’s plans to require foreign yacht charter companies to register for value-added tax, and pay a 10 percent tax on the full lease: “If they want to get the business out of the country, that’s a good way to do it.”
Foreign yacht charter companies are already supposed to pay a fee equivalent to 4 per cent of the contract value to the port management. However, the Boat Registration Rules (Amendment) 2022 reforms, which were rolled out in the House of Representatives on Wednesday, effectively subject the industry to ‘double taxation’ by levying a 10 per cent value-added tax on the same contract.
This more than triples the yacht charter tax rate, rising from 4 percent to 14 percent, and Morey said such an increase threatens to undo the increased market share for boats/yachts that the Bahamas have enjoyed since the start of the COVID-19 pandemic.
The ABM chief warned that the government would “push them straight into the Caribbean,” telling this newspaper that data collected from 55 anchorages in the Bahamas showed the sector represented 37.3 percent – or more than a third – of total tourism revenue generated in the Bahamas. year 2021.
Mr. Morey based this on the total gross revenue of $327,438 million that Bahamian tourism generated in 2021 — a statistic he said came from the Department of Tourism. Emphasizing that it showed the marina sector had “going great strides” in efforts to bring more boats and yachts to the Bahamas, creating jobs and entrepreneurship for local residents, he said all of this could be lost due to what he described as tax seizure by the Ministry of Finance.
However, his concerns were vehemently dismissed by Senator Michael Halkiets, Minister of Economic Affairs, who argued yesterday that the foreign yacht charter industry had for years been “enjoying windfalls at the expense of the Bahamas” by using this country’s marine environment and natural resources to earn millions of dollars without paying its share. fair to the public treasury.
Ignoring arguments that raising value-added tax on foreign yacht charters is too onerous, Mr Halkis scoffed at suggestions that the move would “kill” the sector when addressing the Prime Minister’s Office’s weekly press briefing. He noted how private pilots threatened to abandon the Bahamas and instead fly to destinations like Turks and Caicos, when the government charged a $50 customs processing fee for private jets.
Confirming that the opposite had happened, and that the private aviation business had actually increased since then, the minister said the government had struggled for years to collect taxes owed from chartering foreign yachts through a 4 per cent fee. “In terms of chartering yachts, this has also been an annoying problem,” said Mr. Halketese. “There is a 4 per cent fee on the charter.
“They charge a fee to do the charter, and the government is supposed to take a 4 percent rental fee. What we are saying now is that these individuals have to register for VAT and we get VAT on the cost of the charter. As the yachts enter our waters, they are having fun. With our environment, and they make money, and we feel entitled to make something of it. It’s our resources that are being used to generate that money, so we think we should get something for that.
“The Bahamian government has to spend the money to make sure our waters are in good shape” by having the Royal Bahamas Police Force and the Royal Bahamas Defense Force in place, so visitors and the Bahamas can feel safe, added Mr. Halketes.
“We don’t think that’s burdensome,” Mr. Halketitz added the 10 per cent value-added tax. “We did some checks and found, for example, that if you do a charter in the Mediterranean, the VAT is 22 percent and we charge 10 percent. We don’t think that’s going to kick anyone out.”
Almost anticipating Mr Murray’s response, the minister noted the previous uproar over the $50 special flight processing fee and the failure of “doom and gloom” predictions to become a reality. “People say, ‘Well, if you do this, it’s going to kill the rental industry,’ right?
“We don’t think so. In fact, we believe, and I say so here, people have made windfalls for so long at our expense and we feel it is time to get what we think is our fair share. We have a beautiful environment and we have to preserve and preserve it. Another in the world you have to pay. Give us our little thing.” Research by this newspaper showed that the rate of value-added tax on rental fees in Greece and Spain is 24 percent and 22 percent, respectively.
However, Mr. Morey argued yesterday that the average VAT rental rate was actually 17 percent. He added that when this order was imposed, many countries in that region “lost half their business” to Croatia. The ABM chief also emphasized that it is misleading and inappropriate to compare the Bahamas to the Mediterranean, given the distance between the two, and because this nation’s real competition is the Caribbean.
“The rest of the Caribbean is at zero,” Morey argued, comparing the region to the new tax rate in the Bahamas. He said Finance Ministry officials have challenged him with Mediterranean tax rates across successive administrations to justify increasing taxes on foreign yachting charters here, while also arguing that fuel and other costs make it impossible for ships to seek out other jurisdictions — positions he says. Flawed and risking Bahamian business.
“This is going to kill us,” Morey told Tribune Business on the 10 per cent value-added tax. “This puts us in a whole different world. I see why they wouldn’t bother telling anyone. If they had to discuss it beforehand, everyone would get agitated. They know it’s going to make a fuss. That’s not good news. I think it’s really going to hurt the industry. We have companies from The Bahamas Just Starting As Agents And Brokers We’ve Started A Whole New Association Of Yachting Brokers In The Bahamas.
“I’ve said it before, and I said it the last time they did it. The rest of the Caribbean is at ground zero. Nobody else is doing it. If you want to get business out of the country, that’s a good way to do it. It’s the Treasury. I went through this with the last finance minister [Marlon Johnson] And this. They are just trying to make money. They don’t look at the industry as a whole.”
Referring to ABM’s 55-person Marina Research, which indicated that the sector contributed 37.3 percent or $122.135 million of total tourism revenue in the Bahamas of $327,438 million in 2021, Mr. Morey showed figures showing that this The utilities generated $78.058 million in consolidated fuel sales last year, and $18.109 million and $10.819 million, respectively, in total electricity and water sales to moored vessels. The value-added tax paid on that amount, at 12 percent, amounted to $18.322 million.
While the $327.438 million figure, which was said to have come from the Department of Tourism, cannot be verified by this newspaper, Mr. Morey said the marina sector’s profits and economic contribution are at risk if a tax increase prevents foreign charters from coming to the Bahamas. The clients of the boat/yachting segment are usually high-return spenders whose influence can spread throughout the Bahamas, not just Nassau, thus distributing wealth more evenly.
When asked if an advance provisioning allowance (APA), which allows charter ships to store supplies before customers arrive, would be included in the VAT calculation, Mr Morey said the impact of visitor and crew spending was being felt across the Bahamian economy by hotels and restaurants. casinos, liquor stores, groceries and other sectors.
“I saw cruise companies come out and they say they are happy to see yachts have to pay 10 percent VAT. We raised, in a 4 percent fee in one year, $3.5 million for the government through our online portal. Through the combination,” Mr. Morey said. Right, we can get more.” “Why hit them with other fees?
“We have made great strides in the last couple of years in bringing this industry to the Bahamas, and creating a lot of jobs in the Bahamas. If the government is concerned about expeditions, they should consider the 10,000 Bahamians who work in the yachting and marina industry. I guarantee they are So much more than just trips. If you look at what we did last year, it was the biggest leap in industry growth the Bahamas had ever seen. I’ve been in this industry for 30 years and have never seen that before.”
Noting that opportunities ranged from boat and carpet cleaners to Bahamians setting up their own yacht brokerage and agency businesses, Morey said many of those possibilities “didn’t exist five years ago.” He added that these livelihoods could now be threatened as well as current government revenues from port fuel sales.
“We received a letter from the International Yachting Brokers Association saying that because everyone is so focused on exorbitant fees, the Caribbean is suddenly going to look better,” revealed the ABM chief. The Caribbean probably leads the industry in this region. We have a third of our share. For every yacht that comes to the Bahamas and the charterers, two yachts go to the Caribbean.
“We’ve been able to get through that in the last couple of years with hurricanes and pandemic, and open our borders first, but if we do that it’s going to send them straight back to the Caribbean. I don’t care what economic model you’re looking at. Ten percent of nothing is still nothing.”
Mr Morey said he previously made it clear to the Treasury that boats/yachts have the option to go elsewhere in the Caribbean if the Bahamas raise taxes. Officials argued that fuel and other high costs would prevent the ships from heading south, but the ABM chief made clear that this was not true. He said the ships burned as much fuel when docked as they did when sailing to other destinations, meaning they incurred no additional cost when going into the Caribbean.
“It’s like the cost of tea in China. Comparing the Mediterranean, Mr. Morey said. The timing for the introduction of the VAT has been particularly bad with several anchorages, including the opening of Hurricane Hole in Paradise Island and the Port of Nassau, along with new facilities at Abaco (three), Harbor Island, and Eleuthera.” “How are they going to fill out those vouchers?” asked the ABM chief.
He also fears that the bureaucracy and red tape involved in becoming a VAT registrar, and opening a bank account in the Bahamas, will deter many foreign charters from even trying to work with the new law. Currently, while ships can pay the rental fee online, they have to wait two weeks for the annual permit and have to visit the port administration in person to collect it.
With a Click2Clear system that requires visitors to answer 340 questions to enter the Bahamas, Mr. Morey said customs weren’t much better. He noted that the ship, which needed to leave the Bahamas at a certain time, on Wednesday, in order to be able to contact Qatar when it arrived in the United States, was delayed for three hours waiting for customs to clear its departure, as the agency later imposed fees on the boat. for overtime work.
It is not clear when the new VAT registration and tax will take effect. Given that they were introduced as “rules,” they could only be brought up in the House of Representatives – as happened on Wednesday – to come into effect rather than waiting until all budget legislation has been passed and implemented July 1.