The Prime Minister yesterday asserted that cracking down on VAT deductions for construction projects worth over $1m will ensure the Public Treasury no longer loses out to “private interests”.

Philip Davis KC, leading off the 2025-2026 Budget debate in the House of Assembly, asserted that private companies and homeowners not involved in real estate development or sales have “disproportionately” benefited at the expense of Bahamian taxpayers by being able to recover the 10 percent tax paid on building materials, equipment and other construction supplies.

“With respect to another amendment to the VAT Act, a taxable person or entity will no longer be permitted to claim ‘input’ tax deductions for goods and services used in major construction projects, or building docks, reclaiming land or undertaking developments valued at over $1m unless they are in the business of supplying real property as part of their regular operations,” he explained.

“In other words, if a real estate developer is building homes or commercial spaces for sale, and the costs are directly tied to those taxable sales, they will still be able to claim VAT credits. However, for private developments not intended for resale, this benefit will no longer apply.

“This is to ensure that VAT refunds are used appropriately, and not in ways that disproportionately benefit large private interests at the expense of the public purse.” 

The VAT (Amendment) (No.2) Bill seeks to insert several new sub-sections in the existing Act that “restrict VAT input deductions for major construction unless involved in taxable property supply”, meaning developers of subdivisions and other real estate that will be re-sold to new buyers are exempt. Major construction is defined as projects worth $1m or more.

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 “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.

As a result, Bahamian businesses undertaking physical expansion of their premises are likely to fear they will face a 10 percent hike in construction costs as a result of not being able to reclaim the VAT on their input costs. Apart from being contrary to how VAT, a tax on the end-user, operates, the move is being viewed as a disincentive to job-creating growth, investment and construction activity.

Mr Davis, meanwhile, yesterday tabled two new Bills that will be included in the Budget legislative reform package, one of which is to formally create the Maritime Revenue Unit and give it legal status. The other amends the Central Bank Act to allow the Government to “request a withdrawal of interest income” on the $128m in dormant accounts that the regulator holds to fund small home and hurricane repairs.

Turning to new measures to boost maritime safety, and enhance revenues from the sector, the Prime Minister added: “Amendments to the Water Skiing and Motorboat Control Act will establish enforceable safety protocols for jet ski operators, including the mandatory wearing of approved flotation devices and restrictions on operating during hours of darkness.

“Jet skis will also be prohibited from carrying passengers unless both parties meet the safety requirements. All motorboats will be required to display a visible registration number. These changes are designed to ensure the safe and responsible use of our waters.

“In addition, in the Port Authorities Amendment Bill, there is a requirement that all foreign vessels would now be required to keep on automatic identification systems while they are in Bahamian waters. This assists with search and rescue, but also aids in identifying vessels which are not complying with the terms of their entry permit.”

Staying on the water, the Prime Minister continued: “We are strengthening the enforcement of seabed leases. Under the Port Authorities Amendment Bill, any unauthorised use of the seabed will attract penalties. This protects our marine resources and ensures proper regulation of underwater space.

“We have also put in place a mechanism to collect environmental levies on seabed leases. This is important as we have established that the seabed has substantial monetary value. We are amending the Customs Management Regulations to have three categories for cruising permits, with a fee increase.

“With the amendments to the Fisheries Resources Regulations, we are also tightening the permit process and delinking the fishing permit and anchorage approval from the cruising permit. There will be separate charges for a fishing permit, and any vessel not with a marina or yacht booking would need to pay for an anchorage permit.

“Under the amended Port Authorities Act, the minister would have the ability to designate anchorage zones throughout the archipelago. This will only be for places where anchoring by a foreign vessel is allowed.”

Seeking to boost Bahamian participation in the maritime sector, Mr Davis said: “It is well known that non-Bahamians have a substantial presence in the yacht charter sector. This has occurred because we have been slow to update regulations that allow limited foreign participation in the sector.

“These regulations allowed high-end charters to be booked outside of the country. But the market for yacht charter is now predominantly a high-end market, so Bahamian yacht brokers could not participate in the growth of this industry. This will change with the passage of the compendium of legislation on the marine sector.

“Non-Bahamian charter operators using sea vessels within Bahamian waters will now face well-defined enforcement measures for licensing, inspection, insurance and registration requirements. Failure to comply may result in the imposition of fines, and the impoundment of vessels. Fixed penalties will be introduced....”

The Prime Minister also confirmed that changes to the Business Licence Act are designed to “address the proliferation of liquor stores by allowing the community to have a say in whether the licence is granted or not”, noting that the issue has been a particular problem in many inner city and Over-the-Hill communities.