• Decline blamed on VAT imposition on yacht charters

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

Bahamian marinas were yesterday said to have suffered up to a 40 percent or more decline in business that is being blamed on VAT’s imposition on yacht charter fees.

Basil Smith, the Association of Bahamas Marinas (ABM) executive director, told Tribune Business that all but one marina has reported a plunge in vessel traffic for the winter season to-date with vessel owners and operators saying they prefer not to deal with the bureaucracy and red tape that comes with having to register their vessels to pay the 10 percent levy.

“I’ve been in touch with ten members and every last one of them said business is down severely, except for one single exception that says he’s doing OK, but that is the only one that has given me a positive response,” Mr Smith said.

Some major marinas were reported to be down by as much as 60 percent. “The one that is up said he is up by 30 percent, but the rest of them are saying they are down dramatically and one said it was precipitously. This was cited to me: One marina was down 40 percent and another said they were down 60 percent,” Mr Smith said.

The imposition of VAT on yacht charter fees in the 2022-2023 Budget was said to be behind this “lack of competitiveness” for The Bahamas, with many yachts “deciding to head further south” rather than the come into Bahamian waters.

Mr Smith said: “I think the main problem is the VAT regulations that have been imposed. Some of them are citing that they can understand the Government’s need for taxation, but some of them are concerned about entering a tax role for whatever reasons people may have at that end of wealth. Some of them wish to not be involved in too much paperwork.”

“I think the marina members are concerned about The Bahamas just being not competitive and it is becoming too costly for them. Some of the destinations we compete with, despite the distance being further, there are no bureaucratic impediments. Many of the competing destinations seem to be a bit more open in their embrace. The ABM is making formal representation to the Government so I’d rather make no further comment at this time.”

Mr Smith’s comments echo that of former ABM president, Peter Maury, who told this newspaper recently he had suffered the worst Thanksgiving Day for 30 years. He, too, linked the drop off in foreign yachts to the imposition of the VAT on foreign yacht charters.

Mr Maury, who operates Bay Street Marina, told Tribune Business that he and other marinas across The Bahamas are “getting creamed” with occupancies over the Thanksgiving period - the US holiday that traditionally kicks-off the winter tourism and boating season - plunging from the traditional “high 80” percent range to between 60-65 percent.

Revealing that he himself has “lost eight big boats to the Caribbean” for the entire season, he blamed the decline in business on the Government’s decision in the 2022-2023 Budget to impose 10 percent VAT on all foreign yacht charters.

Mr Maury said many vessels, and their owners/operators, were being deterred by the process and bureaucracy around having to register the boat with Bahamian tax authorities and then submit the necessary filings rather than the payments and concept of VAT taxation itself.

“We’re getting creamed. It’s not good,” he told this newspaper. “It’s the VAT on the charters. All these guys have to register their vessels, and no one wants to do it. I’ve lost eight boats for the season so far to the Caribbean, all big boats. It’s terrible. I’ve never seen the marinas this empty at Thanksgiving.

“All the marinas in New Providence, even Harbour Island and Eleuthera, many of the vessels have skedaddled. It’s slow everywhere. You go on Marine Traffic, and all the boats are in the Caribbean. That’s what I always use as a gauge. Nobody has got a full marina right now. We’ll see how it goes. Hopefully it gets better, but so far this is the worst Thanksgiving I’ve seen in 30 years in the business.”

Prior to the Budget reforms earlier this year, foreign yacht charters were already supposed to pay a fee equivalent to 4 percent of the contract value to the Port Department. However, the Boat Registration (Yacht) (Amendment) Rules 2022 now effectively subject the industry to ‘double taxation’ by levying 10 percent VAT on the same contract. This more than triples the tax rate for yacht charters, taking it from 4 percent to 14 percent.

However, not everyone will be lamenting the increased taxation on foreign yacht charters. Bahamian tour and excursion operators, including the Bahamas Excursion Operators Association (BEOA), had for years been urging the Government to place them on an even taxation competitive playing field with foreign rivals who they argued were incurring a much lighter burden than themselves when it came to Public Treasury contributions.

And they also charged that the Government was missing out on significant uncollected revenues from the yacht charter industry as many operators were avoiding or evading payment of the 4 percent fee to the Port Department.

The Government agreed. Senator Michael Halkitis, minister of economic affairs, after the Budget’s presentation argued that the foreign yacht charter industry had for years “enjoyed a windfall at The Bahamas’ expense” by using this country’s marine environment and natural resources to earn millions of dollars without paying its fair share.

Dismissing arguments that the VAT hike on foreign yacht charters was too onerous, Mr Halkitis chuckled at suggestions the move would “kill” the sector. He recalled how private pilots had threatened to abandon The Bahamas, and instead travel to destinations such as Turks & Caicos, when the Government introduced a $50 fee for Customs processing of private planes.

Asserting that the reverse happened, and private aviation business had actually increased since, the minister said the Government had for years struggled to collect due taxes from foreign yacht charters via the 4 percent fee. “In terms of the yacht charters, that’s been a vexing problem as well,” Mr Halkitis said. “There is a 4 percent fee on the charter.

“They charge a fee to do the charter, and the Government is supposed to get a 4 percent charter fee. What we’re saying now is that these individuals have to register for VAT and we get VAT on the cost of the charter. Because the yachts are coming into our waters, they’re enjoying our environment, they’re making money, we feel justified in earning something from that. It’s our resources that are being used generate this money, so we think we should get something for it.

“We don’t think it’s onerous,” Mr Halkitis added of the 10 percent VAT levy. “We did some checks and found, for example, that if you do a charter in the Mediterranean the VAT is 22 percent and we’re charging 10 percent. We don’t think that will chase anybody away.”