Dear Members VAT ISSUES The Government of Grenada has set the VAT rate on accommodation at 10% and food and beverage at 15%. However, the VAT Act states on Page 347, Section 6, Clause 5, that – “A supply of a particular kind (‘the incidental supply’) that is ancillary or incidental to a supply of another kind (‘the principal supply’), is treated as part of the principal supply”. In the case of “All Inclusive” the principal is the accommodation, and spas, meals, water-sports etc. falls under the heading of ancillary or incidental. Therefore accommodation (principle) attracts VAT of 10% and spas, meals, water-sports etc. (ancillary or incidental) also attracts VAT of 10%. Please note that this clause was discussed with Ms. Pauline Peters, Head of the VAT Office, some time ago, and our President was assured verbally that this indeed is the correct interpretation. However this has not been confirmed in writing. Of interest to note is the fact that though St. Lucia is yet to introduce this method of taxation, their VAT White Paper states, under the heading ‘Tourism’ that: ‘In St. Lucia, the tourism sector continues to be one of the most significant contributors to the economy, recording a positive growth of 2.2% and contributing 11.7% in real GDP in 2008. It is intended to exempt hotel accommodation from the payment of VAT given the competitive nature of the industry, and the ease of substitution between services provided in one destination for that provided by a competing destination.’ This in effect means that Grenada’s room rate will be 11% more than St. Lucia. (Should you wish to peruse the St. Lucia VAT White Paper please contact the GHTA office). On the issue of VAT on Service Charge – The GHTA had been led to believe that VAT would not be levied on service charge as doing so would, in effect, be levying VAT on salaries. This is unprecedented and to date we have been unable to find any other country that charges VAT on service charge. The following countries use VAT and do not collect VAT on Service charge: St. Vincent, Barbados, Antigua, Trinidad and Tobago, Mexico, Dominican Republic. The VAT office has now made it clear that they intend to impose VAT on service charge. The GHTA intends to rigorously oppose this charge which is grossly unfair, and is simply a tax on the salaries of workers whose annual salary is way below the figure at which workers are obliged to pay tax. In effect VAT on Service increases the hotel rate by an additional 1% putting us at 4.5% above Barbados whose VAT accommodation rate is 7.5%. The act states on Page 347, Section 7, Clause 1, that – “Taxable activity means an activity carried on continuously or regularly by a person, whether or not for profit, if the activity involves or is intended to involve the supply of goods or services to another person, and includes the carrying on of any business, but does not include: (a) the activities of an employee providing services in that capacity to an employer”. We interpret this to mean that there should be no VAT on service charge. The GHTA will be taking legal advice on this issue. While the GHTA agrees in principle to the implementation of the VAT system of taxation, the above issues will be urgently addressed by the Association. The GHTA further finds the aggressive attitude of the VAT office unacceptable in light of the fact that the private sector is expected to collect taxes on behalf of the Government without compensation. Threatening to send owner/operators to prison for non compliance of the displaying of VAT certificates is not the way to develop a good working relationship. We are therefore asking that the VAT office reconsider their attitude on this issue. Please let us know of any other threatening behaviour from the VAT officers and we will lodge the necessary complaints. Please know that your Association is working hard on your behalf to rectify these problems. Yours sincerely Pancy Cross EXECUTIVE DIRECTOR cc Ms Pauline Peters – Head of VAT Office cc All Media Houses