The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior official yesterday confirmed that the Government has dropped immediate plans to lower Business Licence fees to a nominal annual $100, as it wants to first assess how Value-Added Tax (VAT) performs post-implementation.

John Rolle, the Ministry of Finance’s financial secretary, told Tribune Business that the tax reform ‘White Paper’s’ plan to reduce Business Licence fees to $100 simultaneously with VAT’s arrival had only been a “proposal”, and never ‘set in stone’.

Confirming that the Government’s thinking on this had “evolved”, Mr Rolle effectively confirmed what Gowon Bowe, the PricewaterhouseCoopers (PwC) Bahamas partner, had told this newspaper earlier this week, namely that Business Licence fees would not be lowered until the Christie administration was sure it was meeting its VAT revenue targets.

“The ‘White Paper’ was just put out as a proposal,” Mr Rolle said. “While the ‘White Paper’ did suggest that [$100 Business Licence fees] were a possibility, it wasn’t a definite. There is not any immediate proposal to that effect.

“That’s one of the areas where the thinking has evolved. It’s been looked at within the comprehensive framework of the revenue targets and the understanding of how the Government’s revenue is going to perform over the near term.”

Mr Rolle’s confirmation that Business Licence fees will not be lowered “at this stage” is likely to disappoint many Bahamian companies, who were likely hoping that some existing tax burdens - other than Customs duties - would be alleviated once VAT was implemented.

While the Financial Secretary did not rule out future Business Licence fee reductions, he suggested this would only take place in the medium to long-term. Based on his previous definition of the ‘medium term’, this likely places any Business Licence fee adjustments five-seven years away.

“The Government’s overall approach is looking at revenue comprehensively, and then seeing over the medium and long-term how the reform process can be advanced, looking at it like that.

“We are not necessarily tackle this in isolation.”

Mr Bowe had earlier this week described the Government’s seeming reliance on Business Licence fees as a Value-Added Tax (VAT) contingency as “a bit dangerous.

The Government’s tax reform ‘White Paper’, issued in February 2013, had pledged to effectively eliminate Business Licence fees and reduce them to a nominal $100 when VAT was introduced on July 1, 2014.

Mr Bowe said the apparent ‘reversal’ of this position was causing “grave concern to most businesses”, who now fear they will be hit by a ‘Triple Whammy’ of cost and tax increases in the New Year.

While the 2013-2014 Budget introduced increased Business Licence fees for most firms, many had already paid theirs, given that they are based on the calendar year.

This means that the revised Business Licence fees, which for some companies have tripled, will only take effect from January 1, 2014. That will kick in at the same time as the Bahamian private sector is grappling with VAT implementation costs, with the new tax set to come six months later.

“John Rolle, in several of his more presentations, and informal conversations, has indicated they’ve [the Government] been advised that Business Licences should not be reduced downward to nominal amounts until they’re sure of the cash collection with VAT,” Mr Bowe told Tribune Business.

“That is of grave concern to most business persons. It’s a real quagmire for most of the businesses.”

Pointing out that there was “huge uncertainty” over Business Licence fees alone, regardless of VAT, the PwC partner said the Government’s seeming reliance on them to ‘back stop’ any problems with the new tax raised a number of questions.

“That’s a bit dangerous,” he told Tribune Business. “If you are treating Business Licences as a contingency plan for VAT, it only begs the question: ‘What are the concerns with VAT that give you reservations, and should be addressing those reservations rather than having contingencies in place?”

The Government is projecting that VAT will generate around $500 million for it in gross revenues, or a net increase of around $200 million per year. Some $320-$330 million will come from VAT on imports, with the remainder set to come from services.

And this year’s Budget projects that Business Licences will earn around $120-$130 million for the Government.