By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Thousands of Bahamas Telecommunications Company (BTC) pre-paid cellular customers will see their calling costs increase 15 per cent under Value-Added Tax (VAT), with the carrier itself set to incur a “substantial” $1 million bill just to make its systems compliant.

Marlon Johnson, BTC’s senior vice-president of brands and communication, told Tribune Business that its major tax reform concern was how VAT will be charged on pre-paid cellular phone calls.

The major issue, he explained, was whether VAT will be levied when a person buys a phone card or Top-Up minutes, or if it will simply be added to the cost of each call.

Mr Johnson said both these approached had been implemented in different VAT jurisdictions, adding that if the Bahamas chose to levy the tax at point of minutes purchase, a $10 phone card will effectively be worth just $8.50 post-July 1, 2014.

His comments illustrate the major impact VAT will have on Bahamian cultural norms, given the numerous lengthy conversations many persons currently enjoy on their cell phones tax free.

The Government’s fiscal consolidation programme will thus usher in an increase in costs/reduced airtime for thousands of Bahamians and residents come July 1, 2014.

Mr Johnson told Tribune Business that BTC, as the monopoly cellular provider, had already submitted suggestions to the Government “as to how pre-paid charges are best and most efficiently managed for VAT.

“We did give them various recommendations and suggestions on how to best and most efficiently apply it for VAT,” he added.

“The question is whether it’s charged when the person buys the phone card or makes a call. It impacts the entire process.”

Noting that pre-paid cellular transactions go through multiple “touch points”, Mr Johnson reiterated: “It’s where the tax is taken that will be important.

“We want to get clarity across the board, but for us that’s [pre-paid] the one that lends itself to the most complexity if not managed appropriately.”

Some countries, he said, had included it in the price of phone cards or the equivalent of Top-Up, automatically increasing costs/reducing airtime by the percentage of VAT. Others, though, had simply added the tax on to the calling rate.

Emphasising that BTC would draw on the VAT experience accumulated by its controlling shareholder, Cable & Wireless Communications (CWC), in numerous other countries, Mr Johnson declined to detail the recommendations it had given the Government.

Refusing to specify which of the two pre-paid taxation methods it favoured, he added: “We don’t want to be seen to prejudice the process.

“We have given our views directly on the problem, and the Government has been extremely receptive to our suggestions and the like.”

Mr Johnson, meanwhile, conceded that BTC had much work to do if it was to be ready for July 1’s VAT implementation target.

“The bill will come in at around $1 million based on internal projections,” he told Tribune Business on the cost of getting BTC’s systems VAT-ready.

“It is a costly venture. All of our billing systems, all of our accounting systems have to be redeveloped and brought into line.

“We have earmarked capital to spend, so it is a costly venture and our ambition is to be compliant with the law,” Mr Johnson said.

“We do millions of transactions a day - phone calls, texts and data and the like - and the impact [from VAT] could be substantial. It is a substantial amount of work that needs to happen.

“We do have a team, a committee, working on it, and hopefully the intention is to be ready from day one. We’re doing our best to get ourselves in position where we can, and will, be ready for implementation.”

Several Caribbean countries have exploited the relatively inelastic demand for cell phone calls by imposing a higher VAT or consumption-related tax rate on them in comparison to other commodities.

To-date, there is no sign of the Bahamas following suit, Mr Johnson confirming: “From everything indicated so far, it seems the VAT rate [on phone calls] will be consistent with what’s applied elsewhere.”

He added that this would “simplify” everything, especially on the pre-paid side, rather than BTC having to deal with multiple VAT tariff rates for different segments of its business.

The BTC executive added that no communications industry operator was expected to derive an advantage from VAT, telling Tribune Business: “As far as the impact on the sector, once it is uniformly applied, and there is every indication it will be, it will impact all companies equally.”

Mr Johnson said BTC’s own VAT ‘input’ tax payments, which it should be able to claim back or ‘net off’ against outputs, were easy to project given that the company knew where its revenues were likely to be.

And he added: “There are three key considerations for us. One, compliance with the law, and two, to have internal processes to do it as efficiently as possible do we don’t drive internal costs upwards unnecessarily.

“So that means the more we can automate, the better. Third, it’s important for us to understand the changes so that we can advise consumers, when they see the increase in their bills, what they are paying for the service and what they are paying for VAT charges, so everyone understands how VAT is being charged.”