Bahamas Discusses Aviation, Health Care VAT Changes

by Mike Godfrey, Tax-News.com, Washington

11 January 2016

The Bahamas Government has recently issued two statements regarding value-added tax policy, covering aviation sector operators and the health care sector.

On January 4, 2015, the Ministry of Finance and Department of Inland Revenue said that effective January 1, 2016, zero-rated treatment is only to apply to regularly scheduled passenger, freight, and courier services. The treatment also extends to the equivalent of C135 operators who can provide evidence to the VAT Comptroller and Customs Departments that they provide, on average, at least once-weekly flights to or from the Bahamas, even if limited to a specified tourism season.

The Department of Inland Revenue is to issue Tax Identification Numbers (TINs) to all commercial operators and provide certificates on a case-by-case basis to identify which operators will be eligible for zero-rated treatment on services provided by Fixed Bound Operators (FBOs). An expedited process will be put in place to process these applications during January 2016.

While this is akin to business licensing, non-Bahamas based foreign carriers will remain exempt from licensing fees and related requirements. This amended approach will remove all responsibility from FBOs to directly obtain the commercial designation for any of their customers. For audit purposes, FBOs will be required to issue VAT invoices (which must cite the TIN) to recognized scheduled carriers, and maintain a copy of each certificate of eligibility for zerorating on file, the Government said.

Once carriers have received their "commercial" designations, FBOs will be permitted to provide back-dated credit for VAT charged to such customers on or after January 1, 2016, and offset any output VAT liability for such in amended return filings. Finally, the Government said that with regards to the sale of fuel to aircrafts at the time of departure, the policy is unaltered. Zero-rated supplies are to continue only in respect of those recognized international flights categorized as commercially scheduled.

In a second, earlier notice, the Ministry of Finance clarified that it has not proposed removing VAT from health care services. The Ministry said it is "aware that various stakeholders including the Bahamas Insurance Association have questioned whether healthcare should be exempt from VAT. The Ministry however has explained to stakeholders that adjustments to the VAT system cannot be made independently of technical advice on how the government can offset any reduction in revenue sources, or advice on how the government can continue to maintain the current low VAT rate."

It said: "The current system of minimum exemptions also allows health care providers to recover the VAT paid on goods and services used in their operations in a fashion that is fully transparent to consumers. The benefits from VAT have already increased the Government's financial flexibility, adding the capacity to finance the initial proposed National Health Insurance (NHI) benefits and some healthcare systems strengthening," concluding that it is "working closely with the NHI secretariat to evaluate proposals that would preserve the financial viability of the scheme as the NHI benefits are increased over time."