By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is threatening to undermine economic growth and construction jobs by seeking to slash the VAT that can be recovered on $1m-plus building projects, a top contractor warned yesterday.

Leonard Sands, the Bahamian Contractors Association’s (BCA) president, told Tribune Business that he “did not understand the thought process” behind proposed VAT Act amendments that aim to significantly reduce the “deductions” that companies and homeowners can claim on construction project inputs such as building materials and equipment.

Warning that this will act as a deterrent to business expansion, he added that this change - included in the legislative package tabled in the House of Assembly alongside the 2025-2026 Budget - in effect “penalises the sectors that create a lot of work in construction”.

And, should the Government proceed with the amendment as worded despite the potential fall-out, Mr Sands urged it to raise the $1m threshold to a much higher level - suggesting $5m or $10m - as the present figure is “simply too low” for the realities of today’s construction costs and would capture small projects covering just a few thousand feet.

He and Kwasi Thompson, the Opposition’s finance spokesman, hit out over clause ten of the VAT (Amendment) (No.2) Bill, which seeks to insert several new sub-sections in the existing VAT Act. Property developers, especially those involved in developing subdivisions and selling houses/ lots, are exempted from its provisions which appear to be targeted at existing businesses and wealthy home owners.

The Bill, which is designed to “restrict VAT input deductions for major construction unless involved in taxable property supply”, also appears to have selected the $1m threshold in a bid to ensure it does not impact middle class and lower income Bahamians, or smaller businesses and start-ups.

However, it clearly 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. This concentrates significant power in the comptroller’s hands, and no exemption qualifying criteria was released.

Apart from the $1m threshold, the Bill lists over “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.

“We’ve looked at that proposed amendment,” Mr Sands told Tribune Business, “and on the surface of it we believe it can have a negative impact on construction for several reasons. One, if you are a large business, and for whatever reason you need to extend your physical plant or increase warehouse space, that work is generally over $1m. That’s a very low threshold today for businesses in expansion.”

Citing the multi-million dollar revamp of AML Foods’ Solomon’s Old Trail Road food store, prior to the recent fire, as an example, the BCA president said the only incentive or concession that project enjoyed was the VAT it was able to recover, or claw back, on its construction inputs.

Now, with the Government having decided it may have given too much away, and seeking to claw back construction-related VAT breaks, Mr Sands added: “Right now, moving forward today, any large outfit, whatever it may be, which needs to add inventory space, improve services to meet international standards, put in fire prevention systems, if it’s in excess of $1m you cannot reclaim any VAT for that outlay.

“What that means is the cost of construction to the end user will increase by 10 percent across the board, and it will discourage large businesses from making physical upgrades to their plant. That will not help the large contractors that do the majority of that work.

“We don’t understand the thought process behind that because, right there, that will impact for contractors in that space who do large renovation work for large businesses and are unable to reclaim that VAT. That’s not a good thing. It means the businesses will not undertake that work,” the BCA president continued.

“We can expect to see a reduction in the expansion of the business footprint, and that reduction means a fall-off in the volume of work in that sector. It could reduce the number of projects that happen, the amount of dollars spent in construction, and impact employment numbers in that sector.

“It has a cascading effect because of not recouping the VAT. Recouping the VAT has to continue to encourage businesses to expand their facilities. If it’s taken away, I don’t see any reason why a business will be minded to expand their physical property. That cannot be a good thing for growing this economy in this country.”

Mr Sands recommended that, if the Government keeps the VAT construction inputs deduction bar in the legislation, and it is passed by Parliament, it should adjust the $1m threshold upwards to a higher figure. “If they want to keep it, I would recommend they increase the threshold to $10m,” he told Tribune Business.

“One million dollars is absolutely too low a threshold. Maybe to $5m. It would still encourage large businesses to improve their physical plant, increase space, add on to businesses doing well. They have got to increase the threshold. Today, a $1m expansion of a large warehouse is easy. Two thousand square feet of space is a $1m commercial expansion.

“It’s just that costly. That’s the reality. It’s not a lot of space. Those industries represent a significant part of construction activity in the country. We have to be very careful when, in our view, we seek to penalise those sectors that create a lot of work in construction,” Mr Sands added.

“It can have a negative effect. I believe that’s not the intent of the Government; it’s to gain increased revenue from existing businesses that have the ability to do the expansion. But the threshold has to be increased. To keep it at $1m is simply too low.”

Mr Thompson, the east Grand Bahama MP and Opposition finance spokesman, yesterday branded the VAT deduction claw back as a “hidden 10 percent tax” on Bahamian businesses that was buried in the Budget’s legislative package and never disclosed by the Government.

Demanding that the Davis administration “come clean”, he said in a statement: “This amendment quietly strips VAT-registered businesses of their right to recover VAT on major construction projects over $1m unless the project is tied to taxable real estate sales.

“It’s a massive tax on investment, masked as reform, and the Prime Minister said nothing about it in his Budget communication. Why was this kept from the public? Why wasn’t this massive new cost on local businesses disclosed? 

“This move will drive up the cost of doing business, delay expansions, kill jobs and raise prices for Bahamian consumers. From contractors and clinics to schools and manufacturers, no sector is spared. The FNM will not support this secretive tax grab. Bahamians deserve transparency, not backdoor taxation. We call for its immediate withdrawal and full public consultation.”

Mr Thompson also asserted that the new Business Development Incentives Bill, which was also tabled alongside the 2025-2026 Budget, “shuts out more than 95 percent” of existing Bahamian companies from being able to access its tax breaks and concessions because the threshold to qualify is set at a $50m annual turnover or higher.

“The Davis administration’s new Business Development Incentives Bill is a slap in the face to small and medium-sized Bahamian businesses. By restricting tax concessions to companies with over $50m in annual turnover, this Bill shuts out more than 95 percent of Bahamian businesses, the real drivers of jobs, innovation and local investment,” he argued.

“Let’s be clear: This is a betrayal. While the Government hands out incentives to big, well-connected enterprises, it offers nothing but more taxes on the small business owners who are fighting to grow, create jobs and sustain communities across The Bahamas. This isn’t reform; it’s favouritism.... We reject this elitist policy and call for a tax regime that puts small businesses first.”