By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Nassau Cruise Port’s top executive yesterday warned that giving the cruise industry just 60 days to implement VAT on its Bahamian private islands “seems unreasonable” and is “just not enough time”.

Michael Maura, the Prince George Wharf operator’s chief executive, told Tribune Busi ness the planned March 1 deadline to begin levying 10 percent VAT on all private island goods and services purchases by passengers is simply “too tight” given that the sector has seemingly received two months’ notice of the tax treatment change.

Besides adjusting computer systems to begin charging and collecting VAT from their passengers, he added that the Bahamas needed to consider the cruise industry’s long lead times as the lines typically book port berths for their vessels two years’ out and with cruise itineraries often sold 12-18 months in advance.

As a result, Mr Maura said the two-month window makes it impossible for the cruise lines to adjust their pricing and add VAT to passengers’ bills, with the result that they will “end up having to eat” the tax themselves. He added that, based on past experience, Bahamian businesses would be given longer than the cruise lines are receiving to make the necessary changes to systems and models.

Suggesting that the private island VAT levy be “delayed or deferred” to allow for greater consultation with the cruise lines, and that an economic impact analysis be conducted to determine the effect not just on the likes of Royal Caribbean’s Coco Cay but Nassau and Freeport, Mr Maura also voiced concern about the reform coming “on the heels” of the recent departure tax rise and environmental/development levies.

The Nassau Cruise Port chief spoke out amid signs of a growing cruise industry backlash to the VAT reform proposed by the Ministry of Finance/Department of Inland Revenue. An article in Seatrade Cruise News described the industry as “shell shocked” and taken completely by surprise at Tribune Business’ revelations of the policy change.

The article reported that no cruise industry executives wanted to comment on the record, but those speaking on condition of anonymity asked whether The Bahamas was trying to drive the industry away given the lack of warning and potential impact on the destination’s price competitiveness. There were also suggestions that cruise calls on Nassau and Freeport may be reduced in response.

“Is this called partnership? Is The Bahamas trying to get the cruise industry to reduce calls?” one executive was quoted as saying by Seatrade Cruise News.

“To spring this on short notice without any way to short-term mitigate, this is not right,” another was said to have reacted. “Nobody questions government’s ability to charge VAT, but in discussions with investors you make certain concessions and this exemption has always been in place for cruise lines that invested to build [private islands] dating back to when the VAT was introduced.”.

The reaction signals that the cruise industry is most troubled by the alleged lack of warning, consultation and tight timeline in which to make the adjustments rather than a resistance to charging and collecting it from passengers, who ultimately will be the ones that pay the VAT.

“It makes the product you’re trying to sell less competitive with other destinations,” Seatrade quoted another executive as saying. “It’s a consumer tax. If you’re a tourist looking at a 10 percent cost increase, you may not make the purchase and this may trickle down to impact Bahamian jobs.

“If the cruise lines had the ability to float a 10 percent increase in the cost of tours without repercussions, they would, but there are limits. Sadly, it’s giving the industry an excuse to reassess The Bahamas.” There were then suggestions that the Government’s move could impact cruise industry calls on Nassau and Freeport - the two locations where Bahamian businesses stand to benefit the most.

Mr Maura told Tribune Business he only became aware of the planned tax treatment change yesterday following the fall-out from this newspaper’s reporting. He contrasted this with the consultation that took place with the cruise industry over the departure tax increase, environmental and tourism development levies that were introduced in the 2023-2024 Budget and took effect from January 1, 2024.

“I was not aware it was the Government’s intent to change the tax policy specific to VAT and private islands,” he said. “I think a challenge for all of us, including the cruise lines as well as Nassau and Freeport and The Bahamas, is that prior to the Government introducing the increase in the departure tax, the environmental levy and the tourism development levy there were extensive conversations with the cruise lines.”

These were led by Chester Cooper, deputy prime minister and minister of tourism, investments and aviation, and started in early summer 2023. They would have resulted in the passenger departure tax increase’s implementation being pushed back by six months from the fiscal year 2023-2024’s July 1 start date.

“No one wants to see their costs increase but, as I understand it, there was general agreement on the timing of the introduction of the departure head tax, environmental levy and tourism development levy,” Mr Maura added. “There was great consultation there.

“In this particular case, given that it seems - and I’m not privy to the discussions - but it seems to have been kind of suddenly introduced to the industry. I think that’s very different. I think there’s obviously reasons, and justifiable reasons, for why the Government feels it needs to change any tax.

“I think the Government, and I say this respectfully, I think the Government should look at the cruise industry as it looks at Bahamian businesses..... To introduce a new tax regime, and give them a couple of months, seems unreasonable because I don’t know of too many businesses that can meet that expectation.”

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that the proposed private island VAT changes were “highlighted to the cruise industry a couple of months ago” and there was “no reaction” then. The Department of Inland Revenue’s fifth version of the reforms is dated January 15, 2024, and the sector has been given until February 16, 2024, to provide consultation and feedback.

Mr Maura, meanwhile, called for an economic analysis to be conducted on “what the consequences of introducing VAT on private island economic activity” would be. Acknowledging that such a study may have been performed by the Government that the private sector is unaware of, he added that it should assess not just the direct private island impact but also the effect on other Bahamas destinations in the same itineraries.

“In this particular case, I would hope and respectfully ask the Government to consider and to help all affected parties understand the need for the urgency,” the Nassau Cruise Port chief said of the March 1 deadline. “Perhaps there’s an opportunity for delay, deferment over a period of time. Are there other areas that can be looked at to reduce some of the tax burden for the private islands?

“There’s a lot of people I think would be willing to work with the Government to achieve what it needs to achieve, but I believe and agree that two months is just not enough time. It’s not enough time for Bahamian businesses in Nassau, it’s not enough time for banks in Nassau. It’s just not enough time.”

Asserting that the cruise industry’s long booking window should be accounted for, Mr Maura said vessel berths were usually secured two years in advance with the lines often seeking to sell passengers on future cruises as they return from existing ones.

“They do that based on the cost to deliver that cruise and the revenues needed to make that cruise viable,” he explained. “With 60 days, it’s literally taking the money right from the shareholders’ of the cruise line because it has not been given the opportunity to build this new fee into the cost of the cruise.

“The cruise line ends up having to eat it [the VAT]. We need to give all of our corporate partners an opportunity to help us, and I think 60 days, it’s too tight” especially following so closely “on the heels” of the departure tax and new levies.

Among the private islands that stand to be impacted by such a move are Royal Caribbean’s Perfect Day destination at Coco Cay in the Berry Islands, its global showpiece attraction; plus Mediterranean Shipping Company’s Ocean Cay location; Disney Cruise Line’s Castaway Cay and Lighthouse Point; and Holland America’s Half Moon Cay.

The cruise lines’ private islands have been especially valuable to the sector, and have assumed even greater importance post-COVID given the switch by consumers towards shorter-haul three to four-night voyages that mandate calls in The Bahamas. Expansion and investment is ongoing in multiple locations, and they are unlikely to reduce these locations due to the value to their business models.

MSC is investing further in Ocean Cay; Disney’s Lighthouse Point project is due to open next year; Carnival is developing its Grand Bahama-based Celebration Key port; and Royal Caribbean is moving ahead with its Paradise Island beach club as well as Freeport Harbour and the potential Xanadu hotel purchase.