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News Article
'Exponential' business costs increase from VAT exemptions

Putting forward a position that supports the view of major grocery retailers in the country, John Shewan and Don Brash, value-added tax (VAT) consultants from New Zealand, have come out strongly against exempting breadbasket food items from VAT, suggesting it could increase compliance costs "exponentially".
Supporting the position of members of the Retail Grocers Association, who have expressed major concerns about the impact on their businesses of having to make certain products they sell "VAT exempt", Shewan and Brash said they will advise the government not to pursue this approach, explaining that there are more effective ways to mitigate the impact of VAT on the poor.
In a meeting with the press on Friday afternoon, the consultants explained that in their view, the evidence shows being a business that is considered VAT exempt is the "worst" position to be in. They added that in New Zealand, many more businesses - 180,000 rather than the 120,000 projected - ended up registering to be VAT registrants. A contributing factor is because there is a bias among businesses to do business with VAT-registered firms so they can reclaim VAT credits, said Brash.
Shewan and Brash were both leaders in New Zealand's efforts to implement a VAT system almost 30 years ago. Expressing their enthusiasm for VAT in the context of New Zealand, they said one of the reasons it has been considered simple and efficient is because compliance costs are low. This is because everything is taxed at the same rate and there are virtually no exemptions, other than financial services and rent.
"It's no surprise that the New Zealand VAT system has been heralded as being the best in the world. The reason for that is because of the adherence to a very firm principle that if you want the tax to be at the lowest rate possible and the simplest as possible for both the public and the business community, you need the widest base possible," said Shewan.
Under the present draft VAT legislation in The Bahamas, businesses with an annual turnover of less than $100,000 a year, as well as those offering medical services, education, day care, land or sea transportation and breadbasket food items, among other services and products, are considered VAT "exempt", meaning that they cannot charge VAT to consumers purchasing these items. Many other industries, including service providers such as marketing and public relations firms that believe adding VAT to their pricing will see more of their work outsourced to foreign companies, as well as a number of tourism service providers, have also called upon the government to make certain services they provide VAT exempt.
But Brash and Shewan said those companies which fall into this category can expect to be placed at a significant disadvantage. A better way to mitigate the impact on the poor, they said, is to provide targeted social welfare payments for low-income families.
Their position jibes with that of Rupert Roberts, president of Super Value Food Stores Limited, who has argued repeatedly that exempting breadbasket food items from VAT will leave supermarkets unable to reclaim millions of dollars in VAT input expenses and could cause many businesses to shut down or shed jobs due to cost increases that cannot be offset. He and other members of the Retail Grocers Association have said they are disappointed with the lack of progress made with the government on this point.
Exponential
Referring to retailers and the proposed exemption of breadbasket food items from VAT, which means they would sell both vatable and VAT-exempt items, Brash noted: "The challenge is knowing how much of the VAT they paid to buy their inputs they can claim back, and they can only claim back the VAT for inputs which go into making up the sales which are themselves vatable. If you are also selling things which are exempt you can't claim the VAT you would have paid on that input. So, for example, a retailer may be paying commercial rent and for electricity, and a range of other inputs, some of which they can claim back because they relate to a taxable supply (of goods sold), and some of which they cannot claim back. And trying to apportion your electricity bill between the things which are exempt and the things which are not, is a considerable challenge.
"So that's where compliance costs start going up, not by small increments but exponentially, and that's why we've said if you want to minimize compliance costs go for a lower rate and no exemptions," he said.
Shewan also highlighted the case of the general insurance industry, which had initially sought VAT exempt status in New Zealand, but ultimately determined this would have a negative impact on their business.
Another technical point highlighted by the consultants was the handling of bad debt under the draft legislation. Cash flow challenges could arise by forcing businesses to wait for an extended period to reclaim VAT paid on sales on which invoices ultimately went unpaid.
Shewan said: "We're simply going to be inviting the government to consider those points; it's not our role to tell them what to do, but hopefully our experience will benefit them. I would make the point that those quite technical and boring items, if not dealt with, are the ones that can cause a lot of grief. What you want with VAT is everyone paddling the same canoe in the same direction, not resisting, and that requires you to be accommodating in terms of some of these technical issues."
Gowon Bowe, co-chair of the Coalition for Responsible Taxation, which met with Brash and Shewan last week, told Guardian Business: "A lot of the issues they raised were no different to the issues in our October/November report. Compliance costs was the biggest issue. In their case (New Zealand) limited exemptions were given, and everything else was vatable. They said then the businesses didn't need elaborate systems and everything to make that sale was a VAT credit, so businesses didn't have the complexity. They said that would be a distinct difference in our case, given the way we are going down the path of a number of zero ratings and exemption; it would create more cumbersome calculations.
"They also said that by not having exemptions it enabled them to introduce VAT at 10 percent, although in their case they had a number of other taxes too. We said very explicitly that we hope everything they shared with us will be in their final report."
Brash and Shewan were invited to The Bahamas by the government to share their experience in New Zealand with the implementation of VAT, to offer observations on The Bahamas' preparedness for VAT, and to address any issues they see in the design of the legislation at present. Their report is expected to be completed by the time they depart tomorrow.
Shewan said he felt a July 1 implementation of VAT would be "extremely challenging" at this point for The Bahamas.
VAT was introduced in New Zealand in October 1986 at a rate of 10 percent. The most recent rate of VAT in New Zealand is 15 percent.

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News Article
'Has patient lost too much blood'

By NEIL HARTNELL

Tribune Business Editor
business@tribunemedia.net

THE acquisition of a 78 per cent majority stake in struggling City Markets was completed by businessman Mark Finlayson and his family on Friday, sources familiar with the situation told Tribune Business yesterday, as one rival - while praising the new owners for rescuing some 700 jobs - questioned whether "the patient may have lost too much blood".

This newspaper was told by contacts familiar with developments at City Markets, and its Bahamas Supermarkets operating parent, that all necessary government approvals - including foreign exchange control permission from the Central Bank of the Bahamas - was granted on Friday pas ...

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News Article
'Hostile' 12m AML offer is withdrawn

By NEIL HARTNELL

Tribune Business Editor

BUSINESSMAN Mark Finlayson is withdrawing his $12 million 'hostile takeover' bid to acquire a 51 per cent majority stake in AML Foods, after the Associated Bahamian Distillers and Brewers (ABDAB) Board decided the company's shareholders would gain better returns from City Markets' organic expansion instead.

Speaking with Tribune Business following last week's ABDAB Board meeting, Mr Finlayson said that while the directors approved the acquisition of the 78 per cent Bahamas Supermarkets stake owned by his family's 100 per cent-controlled investment vehicle, Trans-Island Traders, they felt there was "not enough value" for ...

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News Article
'Month's End' Target on City Market's Audit

BAHAMAS Supermarkets' principal yesterday said the struggling grocery chain was seeking to bring its audited financial statements "up to date by the end of the month", after the stock market regulator refused to grant it another extension for the filing of its year-end accounts.

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News Article
'Serious' Bahamas groups assess City Markets deal

By NEIL HARTNELL

Tribune Business Editor

CITY Markets' principal yesterday said "two very serious" Bahamas-based players were now assessing the possible acquisition of the struggling five-store supermarket chain, describing them as "some of the most respected business people in this town and business".

Mark Finlayson, head of the Finlayson family-owned vehicle, Trans-Island Traders, which holds the 78 per cent majority stake in City Markets' operating parent, Bahamas Supermarkets, told Tribune Business he would probably have closed a deal to sell control on Monday had it not been for the emergence of Bahamas-based interest.

Describing himself as "very confident & ...

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News Article
'Serious' Bahamas groups assess City Markets deal

By NEIL HARTNELL

Tribune Business Editor

CITY Markets' principal yesterday said "two very serious" Bahamas-based players were now assessing the possible acquisition of the struggling five-store supermarket chain, describing them as "some of the most respected business people in this town and business".

Mark Finlayson, head of the Finlayson family-owned vehicle, Trans-Island Traders, which holds the 78 per cent majority stake in City Markets' operating parent, Bahamas Supermarkets, told Tribune Business he would probably have closed a deal to sell control on Monday had it not been for the emergence of Bahamas-based interest.

Describing himself as "very confident" t ...

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News Article
'We have our customer base back'

City Market's Sea Grapes store is reporting sales this past weekend that reached 99 percent of levels achieved for the comparable weekend two years ago, signalling better times for the food store chain are around the corner, according to the company's vice president. Nikki Finlayson-Boeuf said she was pleased to see such robust sales so soon after reopening the location.
Meanwhile, Guardian Business can confirm that the South Beach location will open for business on Friday.

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News Article
'Xtra Valu' Rises In Oakes Field
'Xtra Valu' Rises In Oakes Field

The Oakes Field Shopping Centre will soon be re-energized with the opening of a major supermarket at the old City Market location.

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News Article
1.5M Quality poised to open in Seagrapes

A new $1.5 million Quality Supermarket store is set to open in the Seagrapes Shopping Center next month.
Rupert Roberts, the owner of Super Value, told Guardian Business that next month's opening will create the third store under the Quality Supermarket banner, representing a total investment of around $4.5 million.
Its opening should create dozens of new jobs.
The well-known businessman acquired three former City Markets locations in Cable Beach, South Beach and Seagrapes after that supermarket chain hit the final chopping block in April, putting hundreds of Bahamians out of work.
"Our third store in the Seagrapes Shopping Center will open up within the next month or so. We opened the second location in South Beach back in December. Cable Beach was the first location that we opened. Overall, we took over three of those stores, investing approximately $1.5 million in each," he explained.
In December, Roberts noted that all of the equipment for the Seagrapes store was in place, but there was still plenty of work to be done before it can start servicing customers. The owner of Super Value expressed pride in his dedicated staff for fighting through adversity to get these stores open.
As for the first Quality Supermarket location in Cable Beach, Roberts pointed out how it's already turning a profit. But he admitted that it might take time before the other two locations enter the black.
"We've been getting a lot of tourists at the Cable Beach location. It's even better for us during the winter months. On a Sunday morning, business at Cable Beach's Quality Market is just about as good as it is here in Golden Gates.
"As the economy improves, all of the old City Market businesses will come back because 60 percent of all businesses are done in locational convenience.
"Cable Beach turned a profit immediately. I think the other two will be breaking even and turning a profit next year."
The Super Value chief maintains he is not concerned that the newest Quality Supermarket location is so close to Super Value's Winton store because "there's enough business in the east to support both."
"I don't think that's going to be a problem because the stores will be run a little differently, with more specialty food in one of them. So there will come difference," he shared. "In fact, when the economy was up, both City Markets and Super Value locations were thriving."

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News Article
12m 'hostile offer' not in AML's interest

By NEIL HARTNELL

Tribune Business Editor

AML Foods' chairman last night branded the $12 million offer by City Markets principal, Mark Finlayson, to acquire 51 per cent majority control of the BISX-listed food retail group as "not in the best interests of all shareholders", telling Tribune Business it would leave them "at the mercy of an untried and unproven" management team.

Describing the announcement by Mr Finlayson and his Trans-Island Traders vehicle, which last November acquired the 78 per cent majority stake in City Markets' Bahamas Supermarkets parent for just $1, as effectively the first "hostile takeover bid" seen in the Bahamian capital markets, Dion ...

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