Govt says no VAT on exports but didn’t tell airport merchants

Dear Editor,

It’s a ritual for some of us to get off the island to visit family and friends abroad. A part of the routine is to pick up a few bottles of rum or some such other inebriant to take along as a gift.

Who would imagine that the absolute worst place to buy liquor or any other domestic souvenir, trinket or T-shirt, would be the inaptly named duty-free stores in the airport?

As we struggle to come to terms with what a value-added tax is and is not, we have inadvertently allowed some gaping holes to go unnoticed.

Around the world, VAT is a tax on domestic consumption and services. Implicit in the principle of VAT is that it does not apply to any good or service that is exported. It would equate to a government taxing beyond its borders, something no government currently has the authority to do.

Yet, we do it daily at Lynden Pindling International Airport.

After you navigate the long lines at security and give up your fingerprints to U.S. border agents, you customarily get a cheery “welcome to the United States” from the officer who invites you to proceed upstairs into the appropriately named United States Pre-Clearance Lounge. There U.S. laws apply, albeit the Americans will invite local law enforcement to effect your arrest.

If you are a big-league criminal suspect, they call ahead and have U.S. law enforcement waiting to arrest you on the mainland. But for all intents and purposes, the Pre-Clearance lounge signifies you are in the United States.

And so, therefore, by what authority do the merchants selling to this select group of customers get to charge VAT on purchases that are whisked out of the country mere minutes after the sale?

Venture into the liquor store there and you are shown the VAT price for the merchandise. Venture over to another store to buy tinned cakes and, lo and behold, VAT applies there, too.

It is laudable that the airport has made space for local artists to sell their craft in the lounge, but they, too, are handicapped by the fact that they must collect VAT.

The owner of one such stall said she was instructed by the airport authority that they must collect and remit VAT on everything they bring into the area.

One would be hard-pressed to find another international airport where this is the case. There are U.S. pre-clearance facilities in Canada, Aruba, Bermuda, Ireland and Abu Dhabi and none of those merchants charge VAT or any tax on purchases made by departing passengers.

In some airports, particularly in Europe, merchants demand to see a boarding pass because while international flights are tax-exempt, flights within the UK or Europe carry the tax.

Other merchants ask for information on the boarding pass, mainly to see which flights spend the most money on which items so that they can accordingly keep the shelves stocked.

At the airport in Panama, Brazilians buy so much tax-free liquor to take home (where the taxes are high) that the stores keep themselves well-supplied around those departure times.

Until such time as the Nassau Airport Authority (NAD) ends the farce of co-mingling passengers departing to Canada, Europe, the UK, Jamaica and Turks and Caicos with those departing for the Family Islands, we will have to accept that tax-exempt purchases made on the non-U.S. side of the airport will need more vigilant scrutiny by merchants to ensure that booze purchased for the flight to Exuma pays VAT, while liquor bought for the flight to Toronto is exempt.

Create a true domestic terminal and this problem evaporates. It’s long past time that NAD does this.

What’s egregious about charging VAT in the U.S. pre-clearance area is the fact that everyone in that lounge is leaving The Bahamas. No need for document checks on the part of merchants.

The merchants themselves should be the ones making the most noise to get the VAT burden removed at the airport. But we are docile when it comes to challenging authority but display plenty ‘hard-mouth’ when nobody in authority is listening.

Why didn’t they push back at the silly advice from the airport and why didn’t NAD fight like hell with Inland Revenue to point out this obvious flaw in the VAT regulations?

It is clearly spelled out on page 28 of the government’s VAT guidance circular, available online. They say anything exported from The Bahamas is ‘zero-rated’ for VAT. That’s civil service speak for ‘VAT-exempt’.

Unless and until the VAT charge is removed at the airport, we should vote with our feet and decline to spend those couple dollars at home.

After all, a bottle of Bahamian rum is cheaper in Miami (without VAT but with Florida sales tax) than it is at the Nassau airport. Somebody obviously figured out that you can’t charge VAT on exports. Now, will they please tell NAD!

– The Graduate

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