The Ministry of Finance yesterday hit back at former Minister of State of Finance Kwasi Thompson, who accused the government of adding “another burden to the backs of the recovering Special Economic Recovery Zone residents” by removing the zero rating of value-added tax (VAT) on construction services.
Thousands of residents are still rebuilding following the destructive Hurricane Dorian in 2019 and benefited from tax concessions granted under the previous Minnis administration. Although the new Davis administration has extended much of the provisions under the Special Economic Recovery Zone Orders, it removed zero-rated VAT on all services, expect for certain financial services, beginning January 1.
However, the ministry maintained that only a small number of high-end properties will be impacted by this change, noting that VAT is already not charged on labor and materials for standard rebuildings.
“We are aware that some concerns have arisen over the extension of the SERZ order in relation to Abaco, the Abaco Cays, Grand Bahama Island, Sweeting Cay, Deep Water Cay and Water Cay; in particular as it relates to the zero rating on construction services. Vat and duty exemptions have been extended to December 1, 2022, for household furniture, furnishings and appliances, hardware supplies, building materials, electrical fixtures and materials, plumbing fixtures and materials. It should be noted that the vast majority of persons in the impacted areas in repairing their properties will purchase materials and employ labor to effect the repairs,” the Ministry of Finance noted in a statement.
“With the extension of the SERZ order, those persons will not be affected because building materials will remain tax free and VAT is not charged on labor in these circumstances. The removal of the zero rating on construction services is expected to impact a minority of cases, mostly high-end properties. The Ministry of Finance will continue to process applications for relief under the SERZ on a case-by-case basis and consider any application for special consideration on its merits.”
The ministry was responding to Thompson, who hours before said, “The PLP government has added another burden to the backs of the recovering Special Economic Zone residents. Grand Bahamians and Abaconians can expect to now pay VAT of 10 percent on construction services.”
He continued, “We agreed that given the continuing recovery efforts in Grand Bahama and Abaco, the concessions put in place by the FNM should be extended. However the PLP has decided to now add VAT on construction services. Now that inflation has caused a considerable increase in the costs of food and construction materials, residents do not need the added costs on breadbasket items and construction services.”
The government reduced VAT to ten percent from 12 percent beginning January 1 and removed the zero rating of certain medications and breadbasket items.
The Davis administration maintains that the adjustment of this tax will spur consumer spending and add up to $200 million in revenue.