By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s assertion that reimposing VAT on construction services in Dorian-hit islands will only hurt a “minority” of wealthy homeowners was yesterday blasted as “short sighted”.

Ken Hutton, the Abaco Chamber of Commerce’s president, told Tribune Business that the Government’s rationale appeared to neglect the fact that such second home and vacation rental property owners were “the driving force” of the island’s economy prior to the devastating Category Five storm.

As a result, he warned that Abaco’s revival will “suffer” if such homeowners decide to “walk away” perceiving that the restoration environment is unfriendly to their interests as a result of reintroducing 10 percent VAT on the very construction services they require to rebuild their homes.

And, with between 40-50 percent of properties in areas such as Murphy Town, Dundas Town, Great Cistern, Spring City and Treasure Cay “still uninhabitable”, Mr Hutton said the end to such tax relief is “probably going to hurt a lot more Bahamians more so than high-end owners”.

He spoke out after the latest Disaster Reconstruction Authority (Special Economic Recovery Zone) Order 2022, which took effect on New Year’s Day but was only released this week, revealed that the VAT ‘zero rating’ treatment for construction services effectively came to an end on New Year’s Eve.

Services provided in 2021 must have been invoiced before year-end, and paid in full by end-March 2022, for the VAT relief to apply. The end to the ‘zero rating’ means home owners and businesses in Abaco and Grand Bahama will now have to pay 10 percent VAT on contractors’ labour and other service costs, creating a potentially significant hike in rebuilding costs as labour typically accounts for around 50 percent of the price.

The Ministry of Finance, in a statement responding to the outcry, pointed out that VAT and other tax breaks on physical goods imports, such as building materials; furniture; furnishings and appliances; hardware supplies; electrical fixtures and materials; and plumbing fixtures and materials had been extended until December 1, 2022.

However, it seemed to imply that the reimposition of VAT on construction services would only impact a small minority of wealthy homeowners who could afford to pay the tax. “It should be noted that the vast majority of persons in the impacted areas, in repairing their property, will purchase materials and employ labour to effect the repairs,” the Ministry of Finance said.

“With the extension of the SERZ Order, those persons will not be affected because building materials will remain tax free and VAT is not charged on labour in these circumstances. The removal of the zero-rating on construction services is expected to impact a minority of cases, mostly high-end properties.

“The Ministry of Finance will continue to process applications for relief under the SERZ on a case-by-case basis and consider any application for special consideration on its merits.” The statement that VAT will not be levied on labour hired directly by homeowners could also disincentivise the hiring of tax-registrant contractors, impacting the standard and quality of reconstruction.

“I think it is short-sighted of them to believe it will only affect a certain amount of high-end owners,” Mr Hutton responded. “When you consider the second home industry is the driving force of the economy, if those properties cannot be fixed or the homeowners walk away, then as an result of that the economy suffers because those homes are no longer driving it.

“People will lose their jobs. It’s short-sighted to say the VAT relief on construction services only affects certain properties. Those properties are revenue producers and income drivers for the Abaco economy. It’s not someone’s home. It’s primarily a vacation rental property above anything else.”

Arguing that the Government’s VAT construction services policy was akin to saying that small hotels no longer qualify for Hotels Encouragement Act incentives, and only larger ones do, he added that it “needs to realise” the incentive was not solely benefiting “a bunch of rich Abaconians and foreigners”.

“When you look at what’s being affected, I don’t think the thought process was very thorough,” Mr Hutton said. “It’s those people rebuilding their homes and providing employment that drives the economy.

“And it’s not just high-end homes. We still probably have between 40-50 percent of Murphy Town and Dundas Town still uninhabitable, and have homes completely destroyed and not repaired.

“It’s going to have a significant impact on the ability of people in Murphy Town, Dundas Town, Great Cistern, Spring City and Treasure Cay to rebuild. It’s not just a bunch of wealthy property owners. This is going to hurt a lot of Bahamians, probably more so than the high-end owners.”

Mr Hutton, arguing that “it is very critical that the VAT concessions be put back in place for construction services at least for another year or more”, added that phone calls, messages and e-mails sent to the Prime Minister’s Office over the change had not been replied to.

To-date, the Chamber had received an acknowledgment to its concerns from one of Abaco’s two MPs, Kirk Cornish and John Pinder, but Mr Hutton reiterated the body and the wider private sector were open to work with the Government and others “to get Abaco back up and running”.

Kwasi Thompson, the former minister of state for finance and now-east Grand Bahama MP, also blasted the reintroduction of VAT on construction services in the Dorian-devastated islands as “adding another burden to the backs” of still-recovering residents and businesses.

“We agreed that given the continuing recovery efforts in Grand Bahama and Abaco, the concessions put in place by the FNM government should be extended,” he added. “However, the PLP have decided to now add VAT on construction services.

“Now that inflation has caused a considerable increase in the costs of food and construction materials, residents do not need the added costs on breadbasket items and construction services.”