Tuesday, August 5, 2025
By NEIL HARTNELL
Tribune Business Editor
Superwash’s principal says plans to create 25 jobs by building a new laundromat location have been given “serious discomfort” by legal reforms restricting his ability to reclaim VAT on construction expenses.
Dionisio D’Aguilar, also a former minister of tourism and aviation, told Tribune Business he finds it “most disconcerting” that changes to the VAT Act - which accompanied the 2025-2026 Budget - now prevent “legitimate businesses” such as his from reclaiming the 10 percent levy paid on construction inputs, such as building materials, if the project costs exceed $1m.
Revealing that he is “about to launch into a construction project” designed to expand Superwash’s New Providence network by one location, he added that the extra costs and uncertainties created by the Government’s VAT policy change have produced “so many unknowns” that Bahamian companies will likely be deterred from growing their plant’s physical presence.
In particular, Mr D’Aguilar warned that the move will likely create “another level of bureaucracy” that frustrates and delays local firms given that they can seemingly apply to the VAT comptroller for an exemption from the prohibition on obtaining refunds on their construction inputs.
Questioning how the exemption application process will work in practice, and if companies will have to submit requests for this on a monthly basis, he added that the reforms leave companies “so beholden to the whim” of the person making this decision - in this case, Shunda Strachan, also the Department of Inland Revenue’s acting controller.
While describing Ms Strachan as “eminently reasonable”, Mr D’Aguilar told this newspaper that it would be very challenging for her to evaluate a company’s submissions and quickly determine whether the project costs and VAT figures she was being presented with are accurate. As a result, he foresaw an entire “bureaucracy” being built to assess submissions while causing extra cost and delay for fir,s.
Asserting that “you’ve got to believe there’s a simpler way” to judge exemption requests, the former Cabinet minister suggested that firms “trusted” by the Department of Inland Revenue - and who have built up a history of tax compliance - should be allowed to present a break down of their construction project’s total costs. And, if there are any concerns or inconsistencies, the tax agency can carry out an audit;
“The thing I find most disconcerting is the requirement that if you construct a building, spend over $1m on a building, then the VAT you spend on anything you use for that building, you cannot deduct that unless you go and ask special permission from the VAT comptroller,” Mr D’Aguilar told Tribune Business. “How is that going to work?
“I’m just thinking of the mechanism. I’m about to launch into a construction project. We’re contemplating another location. We’re still in the planning stages, but will probably start in the latter part of the year.” Mr D’Aguilar declined to identify the location of the proposed new Superwash laundromat, but added that it would take between 18-24 months to construct and create 25 full-time jobs at completion.
Tribune Business previously reported that the reforms cited by Mr D’Aguilar effectively amount to a new tax on business expansion that will also “shrink” construction activity in that area. And, by preventing Bahamian companies from recovering VAT paid on the building supplies purchased for expanding their physical premises, it turns the globally-established mechanism for how the tax works on its head.
VAT is ultimately to be fully paid by the end-user or consumer, with businesses allowed to offset the tax paid on their inputs against this sum. However, the curbs contained in the VAT (Amendment) (No.2) Act 2025 bar companies from recovering VAT on their legitimate expenses, thus in effect creating a “direct tax” on business expansion without saying so.
Resort and subdivision developers, or anyone constructing property for resale, is exempt from the Bill’s provisions and will be able to reclaim VAT on their inputs. The Government also appears to have selected the $1m threshold in a bid to ensure it does not impact middle class and lower income Bahamians.
However, the Bill states that tax deductions on VAT inputs “shall not be allowed in respect of any goods or services acquired for use in, or connection with” property construction, reconstruction or renovations deemed to be a “major” project unless this is allowed by the VAT comptroller.
Apart from the $1m threshold, the Bill lists “major construction” criteria as involving dredging or land reclamation activities; the construction of docks, marinas and other waterfront structures; the building, paving and improvement of roads, driveways “or other access infrastructure”, and “any other construction activity as may be prescribed” by rules and regulations that have yet to be published.
Mr D’Aguilar said much remains to be clarified over how this will all work in practice. This includes questions over whether Bahamian companies will be able to net off, or reclaim, VAT paid on their construction expenses against so-called ‘output’ VAT collected from consumers prior to hitting the $1m threshold.
And, after the $1m mark is passed, he queried whether companies will have to apply monthly to the VAT comptroller for exemptions from the restrictions. “That’s not exactly going to encourage construction,” Mr D’Aguilar argued. “There’s 100 construction projects going on in this country every single day. Do you make the request every single month you file? It imposes a level of bureaucracy.”
The former Cabinet minister said that, while the Government has given no formal reason for introducing the construction-related VAT restriction, he understands it is designed to crack down on wealthy home owners who were using companies as “fronts” for multi-million residential projects to enable them to obtain VAT recoveries they are not entitled to. End-consumers cannot reclaim VAT paid on inputs.
“I don’t know the extent to which this was being done,” he conceded. “But for those businesses that are legitimately carrying out expansion plans, I’m very interested in how the mechanism for this is going to work. They need to flesh it out more.
“Do I have to write every month to the VAT comptroller for an exemption? You have just 14 days to file, work it out, send the letter and get the exemption. It causes you to think: How is this going to work? Do I get a comfort level that they will grant the exemption? It seems to be at the whim of a civil servant.
“If they’re not going to give the exemption, do I want to do that project because there’s now an additional 10 percent in cost? Is this something where we should set up a much better structure, say you’re going to get an exemption for two months, three months? Are you minded to give pre-approvals?” Mr D’Aguilar continued.
“If I’m going to build a new laundromat, and think it’s going to cost this, can I get pre-approved for that amount? How does the person at the Department of Inland Revenue know what it should cost? This gives one a serious discomfort. Are they going to approve this? Do I have to apply every month? Are they going to say ‘no’? Are they going to delay and say nothing?
“It’s just additional bureaucracy for legitimate firms and companies that are legitimately engaged in expanding. I’ve got to believe that the additional bureaucracy is going to create an impediment for those companies that want to expand their business. There are so many unknowns, and you are so beholden to the whim of that person making that decision,” the Superwash chief added.
“You cannot write a piece of legislation that puts your business at the whim of one person. While Shunda Strachan is eminently reasonable, is it a good idea to hold up the expansion of a business or project that’s in motion, in the process of construction and, all of a sudden, once you pass this threshold that’s required for an exemption, the 10 percent VAT may be a substantial unforeseen cost.
“You’ve got to believe there’s a simpler way to do this. You have to write to the VAT comptroller and seek permission. She’s going to be inundated with these projects, and you’re not going to advance until you know the answer. She has to evaluate that the amount you are requesting, the cost of your project, are accurate and legitimate. I’m sure they are going to require an audit. It’s going to come.”
Mr D’Aguilar said developers and businesses are struggling to forecast how much construction projects will actually cost “because prices are changing every day”, especially with the ongoing uncertainties created by Donald Trump’s every-evolving tariff policies and trade battles. He added that he is still finalising the design for his new laundromat and has not “put it out to contract yet”.
However, with the Department of Inland Revenue also lacking the ability to determine whether the exemption application is correct, the Superwash chief said it will likely create “a huge burden” for the tax authority leading to the creation of an entirely new bureaucracy to handle it.
“This has not been thought through. They should rethink this completely. I can see it growing into a massive bureaucracy,” Mr D’Aguilar told Tribune Business. “This system requiring every single business to come to the Department of Inland Revenue is going to create such a blockage in the system and slow things down.
“I think this is going to come and bite them in the back side. And when they figure out they have no way to assess whether a project’s numbers are right, they are going to create another layer of bureaucracy to review that before you come to them.
“They really don’t think these things through. It just seems to be bureaucracy piled on, and piled on, and piled on. They are designing systems to catch crooked businesses at the expense of honest businesses. I’ve got to believe there are more honest businesses than there are crooked businesses.”
As an alternative, Mr D’Aguilar suggested that companies who have earned the Department of Inland Revenue’s “trust” and proven themselves consistently tax compliant should not have to go through the $1m VAT exemption process. Instead, these firms should disclose the total project spend and lay this open to being audited, with only less trustworthy businesses required to go through the new process.
Comments
empathy says...
A $million? This means that even ‘small businesses’ will be crushed🤦🏽♂️
At this stage in Bahamaland inflation even residential property construction could easily exceed a million dollars, so a commercial project at this level implies that government doesn’t want Bahamian businesses to succeed.
Posted 5 August 2025, 6:45 p.m. Suggest removal
GodSpeed says...
Don't know what's sadder, the tax or those 25 minimum wage slavery jobs.
Posted 6 August 2025, 7:46 a.m. Suggest removal
tetelestai says...
Exactly. No pension; no health or dental insurance. It is no wonder the government has to (overly) tax businesses such as these.
Posted 6 August 2025, 11:26 a.m. Suggest removal
Porcupine says...
This government lacks all legitimacy with regards to looking out for the country's well-being.
Mr. D'Aguilar is correct about this creating another bureaucracy. Something that this government has been piling on for all Bahamians interested in trying to make a living in this climate.
This PLP government is doing NOTHING to ease the strain of opening, operating or maintaining a business.
In addition, the new layers of bureaucracy only add insult to injury, as now every functionary has an excuse to tell people to go somewhere else to get relief.
This government does not value our time and money.
They think their jobs are to collect / suck every dollar they can form this economy for their own, to spend as they see fit.
As if, those in politics really believe that just because they were voted into office they can now do as they wish without interference from the nuisance public.
This administration is killing our economy and our middle class, or what's left of it.
The Dept. of Inland Revenue will turn out to be a major factor in destroying this country.
But of course, they are just doing their jobs.
Soon, AI will be doing their work, just as could be done right now.
Since we continue to promote the most ass-kissing functionaries possible, who knows where this will end.
The very bottom line is by doing so, you can always point to someone else, and say it is their fault.
Posted 6 August 2025, 9:03 a.m. Suggest removal
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