VAT removed from residential property insurance
After a call from the insurance sector for government to remove value-added tax (VAT) from residential property insurance, Deputy Prime Minister and Minister of Finance Peter Turnquest revealed yesterday in the government’s 2018/2019 budget that it has not only complied with the request from the insurance industry, but also extended VAT removal and customs duty rate decreases to several other items in a bid to ease the tax burden on Bahamians.
The Bahamas Insurance Association (BIA) told Guardian Business yesterday that it is still assessing what VAT elimination will mean for the sector and for the consumer.
“The BIA is currently conducting an in-depth analysis of the budget communication to ascertain the implications of the proposed changes for the insurance industry,” BIA Chairman Emmanuel Komolafe said.
Komolafe asked if the elimination of VAT as stated in the budget communication means residential property insurance will be “exempt or zero rated”.
The BIA will seek to determine also: “What constitutes ‘residential property insurance’ and will it be clearly defined? Does this mean that VAT will no longer be charged on residential property insurance premiums but that insureds will still have to incur the higher VAT rate on rebuilding and replacement costs? What will be the impact of the increase in VAT rate on claims cost, sums insured and insurance premiums (including residential property insurance premiums)?”
Komolafe said these concerns cannot be separated, as the increase in VAT rate could “still impact residential property insurance policyholders based on the definition of ‘elimination of VAT’”.
The BIA will also seek to determine what government’s proposed increase in VAT from 7.5 to 12 percent on July 1 will mean for health insurance, especially as the government is seeking to increase access to quality healthcare. Government’s new budget provides for the elimination of VAT on medicines.
It will also seek answers on how the increase in VAT will affect motor and other non-life insurance products.
The BIA will also seek to determine how the increased VAT will potentially worsen the issue of unlicensed vehicles; how it might complicate the existing systems put in place to implement VAT; how this increase will impact the price of life insurance products and premiums; and how the pricing of home insurance will be impacted.
“Our analysis will focus on the entire budget communication and will seek to answer the aforementioned questions during this process,” Komolafe said.
“VAT is a consumption (and regressive) tax that is ultimately borne by the final consumer. The elasticity of demand for insurance products, especially those that are not mandated by law or contract, will factor into the conversation as persons’ disposable/discretionary income are adversely impacted by the proposed increase in VAT.
“The expectation was that revenue measures introduced by the government will make insurance (that is, life insurance, health insurance and general insurance) more affordable and accessible to Bahamians and residents. This would have facilitated an increase in insurance penetration across our archipelago of islands and enable more persons to insure their own risks while reducing dependence on the government. The budget communication does not appear to have achieved this objective, however we will reserve further comments until our analysis has been completed.”
Government is also reducing the excise duty on electric and hybrid vehicles valued at $50,000 and less down to 10 percent; reducing the excise duty on electric motorcycles down to 10 percent; and reducing the excise duty on new, smaller vehicles up to 1500cc in engine size down to 25 percent on new vehicles.
Government is also reducing the excise duty on rechargeable batteries down to 10 percent, and increasing the environmental levy on all vehicles from $200 to $250.
And in a move to promote the purchasing of renewable energy systems, government is eliminating duties on solar kits when an application is made to the Ministry of Finance.
“Presently solar panels are duty free and this new allowance will mean that vendors or individuals who are bringing in full solar kits can have all related elements brought in duty free,” said Turnquest.
With regard to vehicles, according to Turnquest the Business License Act is being amended to require persons importing more than two cars in a 12 twelve-month period, to have a valid business license. This is being done to control the unauthorized roadside vending of vehicles.
“To be absolutely clear, the government wants to continue to encourage all current and future Bahamian entrepreneurs to bring in and sell vehicles if they so wish,” he said.
“However, we are asking and expecting that if you are in the car import and sales business, that you get a business license and join the sector formally.”
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