• Say VAT's imposition has brought sector to 'standstill'

• 'Hardly any bookings' for mega yachts in peak season

• Bahamian businesses bearing brunt of decline in trade

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian yacht brokers yesterday warned charter bookings for the peak winter season are "dismal" with the sector "almost at a standstill" due to VAT's imposition and lack of clarity on how it works.

A Bahamas Yacht Brokers Association (BYBA) spokesperson told Tribune Business the drastic fall-off is not only impacting themselves and local marinas, with the brunt of the impact being felt by small providers and entrepreneurs who provide cleaning, maintenance and other services to visiting yachts.

They added that high net worth clients, who "love The Bahamas and spend a lot of money" when here, are now being lost to cheaper Caribbean territories following VAT's imposition on foreign-owned yacht charter fees with the the 2022-2023 Budget's passage.

And, besides the loss of price competitiveness, the Association spokesperson said a further deterrent to coming to The Bahamas is the lack of certainty surrounding VAT treatment and its application to the industry, as well as perceived inefficiencies with the payment, filing and collection process.

Echoing concerns voiced previously by the Association of Bahamas Marinas (ABM), they also queried the status of the $3.355m contract awarded by the Government to DigieSoft Technologies for the development of an online portal to capture the 4 percent Port Department fee due on foreign yacht charters.

The Yacht Brokers Association spokesperson said that, apart from unresolved questions over the exact nature of services that the DigieSoft portal will provide, many in the industry are reluctant to work with the company given that there is no information about the firm, its principals and past work performed in the "open domain " via the Internet.

Urging the Davis administration to consider either eliminating the Port Department fee or reduce the VAT rate in foreign-owned yacht charters, they added that should it elect to do neither it at least must end "the duality of payments" with the two fees - equating to a combined 14 percent of the charter contract value - being paid to different agencies via separate processes.

"The first thing that I can truly tell you, without providing empirical data, is I can advise that from the second the VAT tax was introduced we've seen dismal bookings on yachts over 120 feet in length, which we consider to be super yachts. That's the market that really benefits the country with services such as cleaning and provisioning," the Yacht Brokers Association spokesperson told Tribune Business.

"It's actually been a dismal amount of charters contracted in country. There were summers in the past before VAT was introduced where we would see some bookings; it's not as busy as winter, but summer of this year was almost at a standstill."

As a result, small businesses and entrepreneurs providing services to so-called super yachts and giga yachts, the latter defined as vessels more than 200 feet in length, either "had to stop their business entirely or pivot" to the domestic economy.

The Yacht Brokers Association spokesperson said this effectively meant service providers had to switch from "cleaning boats to now cleaning cars", with the "return on investment not as great" as that available in the high-margin mega yacht segment.

"We're now in the winter season, which is predominantly the busiest season," they added. "We've seen it pick up a little bit, but nowhere close to prior years - that's pre-COVID and post-COVID. The vast majority of the season is dismal for the charter business in the super yacht sector.

"I have access to the MLS (multiple listing system) when it comes to yacht charters in-country for the super yachts and the giga yachts. You can see it's dismal with bookings from December 8 going into April 30, 2024. Out of 100-200 yachts listed as Bahamas yachts, there are hardly any bookings for those yachts. There's hardly any bookings on yachts of that size. It's very dismal."

The Government's decision to impose 10 percent VAT on foreign-owned yacht charter contracts in the 2022-2023 Budget effectively more than tripled the sector's tax rate from 4 percent to 14 percent when the already-existing Port Department fee was added in.

The Yacht Brokers Association spokesperson said industry feedback, including from international broker counterparts, all suggested that VAT's imposition had made The Bahamas uncompetitive on price and is "affecting the booking of charters within the country".

And, besides the cost impact, they also repeated concerns voiced by AB members that, contrary to other major boating jurisdictions, in The Bahamas foreign yacht charters are unable to offset or ‘net off’ the VAT incurred on their in-country supplies purchases against the 10 percent levy paid to the Government on the charter fee.

"The international community is used to paying VAT," the Yacht Brokers Association spokesperson said. "They don't want to be bothered with The Bahamas at the moment because the VAT process is really confusing. The process of filing VAT and claiming VAT back is very complicated for persons in the industry."

Michael Halkitis, minister of economic affairs, had previously justified VAT's imposition by arguing 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 to the Public Treasury.

Revealing that they have personally encountered such concerns in dealing with high net customers, they added: "I had a conversation a few months back with a potential client of The Bahamas. He booked a charter last year, and wanted to do it again. He was also open to chartering in the Leeward Islands.

"I sent him quotes for the Bahamas and the Caribbean. As soon as I sent those quotes, his executive assistant came back to me saying: 'I see a new charge on Bahamas charter fees of 10 percent VAT'. After explaining that it was introduced earlier and had to be paid, they asked: 'What changed in The Bahamas to make that justifiable?'

"Then she looked at The Bahamas and Caribbean comparison, and made the assumption that I'd left out the VAT and Port fee for the Caribbean. When I explained I had not, she said: 'Oh. That's a much easier sell for the Caribbean'. It's a much harder sell for The Bahamas," the spokesperson added.

"If they love The Bahamas they will pay the 14 percent. If they want to travel and spend time on a yacht, location is not a concern for them. Area and proximity does not affect them because they have access to private jets.... I had that conversation with a very affluent client. He spends a lot of money when he's here and I think we have lost him to the Caribbean market.

"We definitely need some exposure in this regard because business has been dismal. We had a good industry, it was growing tremendously and it came to a standstill. We need some resolution." If the Government still elects to keep both VAT and the Port Department fee, the spokesperson said the industry needs one portal or location where it can pay both to boost the ease of doing business and efficiency.

Also calling for "more cohesion", and the Government and private sector to work together on issues affecting the yachting/boating sector, they added: "We understand that persons should be taxed to a certain extent, and we understand other businesses are being taxed with respect to VAT. At the same time, this business brings additional revenue into the country. It is a financial driver....

"We just want persons on the outside to know that although the industry needs to be taxed a certain way, we don't want to destroy the business and still bring in enough business to be a substantial driver. But right now we are at a standstill."

The Yacht Brokers Association spokesperson also voiced concern that the DigieSoft portal, through which foreign-owned yacht charters were to pay their 4 percent Port Department fees, has yet to become operational despite moves to seemingly mobilise the contract from February this year.

"Nothing is listed on that particular entity," they said of DigieSoft. "We don't see any reviews of the work they've done, engagements they've done or intend to provide, so we're reluctant to work with that company because we don't know their work. There's nothing listed with respect to DigieSoft in open domain. That has us in a bit of awe."

The Bahamas Yacht Brokers Association, in a statement yesterday on VAT's impact on the sector, said: "Our research on the local market has found that the impact has been severe, driving a large percentage of international yacht business to other, more affordable destinations in the region.

"The recently-enacted VAT charge on yacht charters has been touted as a beneficial Bahamas policy as VAT is only charged on foreign-owned yachts. However, the reality is this VAT policy has affected our Bahamian professionals the most, as many professionals who clean, service, provision or otherwise earn a living from charter yachts have seen a huge drop in business.

"Some may be forced to leave what was, until recently, a very lucrative industry for them. Many successive governments had great opportunities in the past to truly improve, revamp and to restructure the entire yachting business. However, there have only been legislative changes that have affected the fee structure or the taxes to the industry - including the VAT taxes that are currently enforced on yacht charters that are booked out of country. This tax was also only implemented to charter yachts, and not to cruise ships or flight services which are also booked out-of-country."