By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Eliminating VAT on foreign yacht charters by combining it into one 14 percent all-in fee is "not enough of a carrot" to reclaim The Bahamas' lost 40 percent market share, a marina chief is warning.

Peter Maury, the Association of Bahamas Marinas (ABM) president, told Tribune Business that the move was unlikely to "move the needle" after it was confirmed on Friday that 10 percent VAT will no longer be due on foreign yacht charters once the 2025-2026 fiscal year begins on July 1.

The Port Department, in a Friday Zoom call with boating and yachting stakeholders, said reforms accompanying the Budget will now require charter captains, and their Bahamas-based representatives, to pay a combined, single 14 percent fee to the Port Department and no longer have to deal with the Department of Inland Revenue.

Previously, besides the 10 percent VAT, foreign yacht charters had to also pay a 4 percent fee to the Port Department on the contract's value, but now the latter will collect all these funds at the consolidated 14 percent rate. This leaves the effective combined tax rate unchanged from what it was previously, meaning the Government in reality is conceding nothing on the revenue front.

The move appears to be designed to reduce the bureaucracy, red tape and inconvenience that foreign yacht charter captains and their Bahamian representatives were encountering in having to deal with two separate agencies, the Port Department and the Department of Inland Revenue, and obtain the likes of Taxpayer Identification Numbers (TINs), compliance certificates plus file returns with the latter.

However, Mr Maury told this newspaper that, with the effective tax rate remaining the same, The Bahamas was still likely to be less attractive than other jurisdictions including its lower-cost Caribbean rivals. He added that VAT's elimination, and combining the two separate levies into one, was an admission by the Government that it "made a mistake" in more than tripling the sector's tax rate in 2022-2023.

"I don't think it's going to move the needle," the ABM chief said. "We've already run the business out of the country. We have to make it attractive to get the boats back; that's the problem. To say that you don't have to file for VAT, but still pay 14 percent, that's not enough of a carrot. That's not attractive enough any more. Brokers have been calling me saying it will not make any difference. 

"Our competitors are at zero percent, and there's a huge movement of yachts from the Mediterranean to the United Arab Emirates. We saw that; that's already happened. I don't know how long Israel and Iran will go at it, but to me I'd drop our charter fee to 7 percent and put it online. We've lost the portal that allowed us to do that.

"Obviously, they've [the Government] made a mistake. They wouldn't be changing it otherwise. They're not going to admit it," Mr Maury said of VAT's elimination in favour of one 14 percent levy. "A lot of companies have already moved. The VAT has been a disaster for the whole industry.

"For the first time in history we've had brokerage companies boycotting The Bahamas. I've never seen that in the 31 years that I've been in this industry. We've had the major brokerages boycotting this country. It's good to have 9.4m cruise visitors annually, but we know the marinas and our properties in the Out Islands have steadily lost customers these last few years."

The Government more than tripled the total tax rate for foreign yacht charters in the 2022-2023 Budget, expanding this from the original 4 percent Port Department fee to 14 percent with the addition of VAT on the value of the charter contract.

Michael Halkitis, minister of economic affairs, justified the move by arguing that there was significant avoidance and evasion of the 4 percent Port Department fee. And he argued that foreigners exploiting The Bahamas' ocean and natural resources for commercial profit should pay more, hinting that this sector had been under-taxed for years.

However, the extent of the tax rate increase, and the fact it occurred in one jump, may have been too much, too fast. Asked how much foreign yacht charter business the ABM believes The Bahamas has lost as a result, Mr Maury replied: "I'd say at a minimum, from what I get back from the industry, about 40 percent. A lot of it has moved to the Caribbean.

"We saw quite a bit of a downsizing in [marina] occupancy as well. Even the boats that were chartering went to the Caribbean. We noted quite a decline in our slips. For us, that was meaningful. We're basically a hotel business and vacation property. We saw a major decline in occupancy, and that's when all those boats went to the Caribbean."

Mr Maury reiterated that the negative economic impact from this extended far beyond the marinas themselves. Spending in food stores and restaurants declined, as fewer boats meant less guests and reduced stocking up or provisioning in The Bahamas, while there was less business for local yacht brokers and agents and a range of service providers, including technical maintenance and cleaning.

"This is what we fight for," the ABM chief said. "They always look at it as the marinas, but it's bigger than that. We have Bahamian crew members on these boats, support businesses and everything else." Lonna Bethel, the Port Department's assistant controller, confirmed the taxation switch to maritime industry stakeholders on Friday morning.

"A lot of you are familiar with the 4 percent charter fee that we, the Port Department, charge for each charter contract or each charter that your client contracts, and 10 percent was meant to have been received by the Department of Inland Revenue," she said.

"I know from some of you, you have been voicing your concerns verbally to us, especially telling us about some of the difficulties you have experienced with submitting that 10 percent VAT, and then a lot of your clients have expressed - we can just be candid - their displeasure, so to speak, with paying an additional tax or having to operate in such a manner where everything is disclosed, so to speak.

"I'm sure you can infer what I really want to say," she added. "So what we did, based on the advice we have been hearing from the sector, we've been hearing from some of you, we collated.... What we did or what we have that is coming on stream, is a consolidated fee, so to speak.

"There's no more split between the Port Department and Inland Revenue. It is just one 14 percent charter tax or charter fee that is payable to the Port Department.... You no longer have to go to the Inland Revenue. There's no requirement for your client to get a Taxpayer Identification Number, a Tax Compliance Certificate.

"I know Inland Revenue have their own processes, which would have made it slightly cumbersome for you and your clients. I know a lot of you on this call are agents and brokers, but there's no longer a requirement to go to the Inland Revenue as of July 1.Your only contact is the Port Department, and you'd submit the full 14 percent to the Department."

This raised multiple industry questions, including whether boats and yachts would be able to reclaim the VAT they pay on Bahamas-based purchases, such as provisions, if they are not longer registered with the Inland Revenue to pay the 10 percent levy. Mr Maury said vessels had never been allowed to reclaim VAT on local purchases, but Ms Bethel pledged to check.

Other queries related to the de-registration process. Sean Ives, a charter broker with Bahamas-by-yacht.com, said de-registering with the Department of Inland Revenue "has been quite a cumbersome process for almost two years. We've had yachts trying to be de-registered and still having to submit zero returns. Are there any short-cuts, is there anything we can perhaps do?

"Is there a way we can stop doing the returns," he added, "or will we still need to do zero returns until the vessel is de-registered?" Ms Bethel promised to check this, too, and added: "As it pertains to the movement of that vessel, that vessel being chartered coming into The Bahamas, once that vessel is on the water, the charter fee of 14 percent goes straight to the Port," she added.

"There's no need for you to go to Inland Revenue, say here's my 10 percent, wait on them for a return or anything of that nature. From our perspective you have no reason to go to Inland Revenue." Ms Bethel also confirmed to Mr Ives that VAT returns, both monthly and quarterly, will have to be filed with the Department of Inland Revenue for the 2025 second quarter as the new rate does not take effect until July 1.

Travis Delva, director of yacht services at Windermere Yacht Services, added: "I just wanted to circle back to de-registration of the VAT TINS for a second because the way the Inland Revenue system works, even once July 1 takes effect, the vessel will still be required according to the system to submit a quarterly return or submit a zero return.

"Even though we're shifting to this set up now, would you be able to get any clarity from the Department of Inland Revenue on if we can stop that once July 1 hits or will the system continue to trigger that every quarter until the de-registration occurs?"