By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Hotel industry executives yesterday backed the Government’s decision to cut the Value-Added Tax (VAT) rate in half as keeping the sector “globally competitive”, despite its rejection of their own 6 per cent recommendation.

Robert Sands, Baha Mar’s senior vice-president of government and external affairs, said: “This move by the Government will help to keep the Bahamian tourism industry globally competitive.

“A VAT of 7.5 per cent across the economy, with the elimination of hotel occupancy tax, is a move in a very positive direction.”

And Stuart Bowe, the Bahamas Hotel and Tourism Association’s (BHTA) president, also backed the VAT rate cut from its originally proposed 15 per cent.

He added: “We recognise fully the fiscal challenges facing our country and appreciate the collaborative approach which has been advanced by the Prime Minister, the Chamber’s Coalition, and our fellow tourism-related associations.

“The Bahamas has been losing market share to countries where the price of a vacation is significantly lower due to their lower costs structures. Our proximity and reputation for delivering a quality product has sustained us to this point, but our growth is constrained by our price levels.

“While we proposed a 6 per cent VAT, we know that a 7.5% VAT will have different cost implications to the broader tourism industry,” Mr Bowe told Tribune Business.

“Decisions made over the coming weeks will have a long-lasting impact on the extent to which we can realise our destination’s potential. We share the Prime Minister’s optimism about tourism’s future for the Bahamas, but recognise the price competitive realities which we face and the impact this is already having on stopover visitors arrivals. “

The BHTA and wider tourism industry had engaged the Ernst & Young accounting firm to assess tax reform’s impact on the sector.

Prime Minister Perry Christie, addressing the House of Assembly yesterday, said the study - presented to him hours before he delivered the 2014-2015 Budget communication - had recommended a 6 per cent VAT “across the board” with other modifications for the tourism industry.

“However, the study does suggest that, in order to meet the Government’s revenue target, it would need to impose employer and employee payroll taxes, increase the sea departure tax and increase other taxes and fees to compensate for the lower VAT rate,” the Prime Minister said.

“My Government is fully sensitive to the very important role that tourism, as our premier sector, plays in our economy in generating activity and jobs. We are sympathetic to the difficult challenges that the sector faces in a highly competitive environment, and we will continue to monitor developments to maintain the fundamental viability of this key industry.

“However, the fiscal challenges that we face are such that, on the basis of the balance of evidence and advice that we have garnered from all of the studies and from the experts, we are unable to accommodate the BHTA recommendation for a VAT rate as low as 6 per cent.”

Still, the 7.5 per cent VAT rate is lower than the current 10 per cent hotel occupancy/room tax that it will replace.