BASSETERRE, ST. Kitts – A consultation on the introduction of Value Added Tax (VAT) held last week drew dozens of private sector stakeholders, but the event failed to resolve concerns of the St. Kitts and Nevis Hotel and Tourism Association (HTA), which predicted impending industry woes if VAT is introduced according to plans in the White Paper.
In the recently published VAT White Paper, the policy document to guide discourse on the consumption tax, it was proposed for VAT to be charged at a lower rate on hotel rooms after consultations with the relevant stakeholders. This perhaps would provide more buoyancy for hotels as many struggle to stay above a 32% occupancy rate.
However, a string of concerns surfaced after representatives of the HTA assessed the White Paper. The HTA’s major concern is the possible increase in prices that the new tax can bring, resulting in adverse fallout at a time of economic hardship.
“At this moment, hotels are being told by the Tourism Authority to include food in their packages. Our problem is if VAT is to be charged on food at a normal rate and [hotel] rooms at a lower rate, we will be seen to be increasing our prices to our consumers, which is something we cannot be doing at the moment,” HTA Executive Director Michael Head told SKNVibes.
He expressed worries that the nation could be viewed as an “expensive destination” by the cruise market and while the White Paper states that domestic transportation will be exempt, destination management companies with packages including transportation may see an increase in price.
This may also hold true for restaurants, as the final product paid for by the consumer is anticipated to be more expensive.
“The Federation no longer has an all-inclusive property. Therefore, the hotels that have an all-inclusive add-on to their packages are again going to be compromised by having to charge a VAT of let’s say 17.5% as opposed to a restaurant tax of 9% as it stands at the moment. Again, this will be seen to be making our prices more expensive than the market price.
“Also, for standalone restaurants, to have let’s say 27.5% added on to your bill—it is a pretty frightening prospect as opposed to the 19% that is normally added on now,” Head cautioned.
Another concern that may not be as “frightening” a prospect as taxing restaurants is charging VAT on water and electricity bills. Head noted that while it may not necessarily translate to an additional cost, it could create cash flow difficulties for hotels and restaurants.
The November 1 VAT deadline has not been well-received by the HTA. The association has requested an extension to have the new tax come on stream next year April not only to allow businesses more time to adjust to the new tax system, but also to avoid the tax complexities brought by large quantities of stock around November 1.
According to Head, the timing is just not conducive to healthy transition.
“Many of our members...on November 1 will be holding huge stocks in anticipation of Christmas sales. If those stocks come in prior to November 1 consumption tax will have to be paid on them and if they are sold after November 1 VAT has to be put on it as well. Whilst the government has offered a system of bonding during this period, we do not feel that with the quantity of goods that we are talking about the bonding system will work,” he said.
In April, businesses’ stocks are expected to be low in preparation for a slow tourism season. Even though the HTA official does not foresee an upturn in tourism until the end of 2011, he said that his proposed timeline would be more favourable for all or most businesses.
Discussions with the Tax Reform Unit and stakeholders will be ongoing in order to craft a beneficial VAT policy for all sectors and consumers to experience a seamless transition.
