The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading accountant yesterday described the Government’s seeming reliance on Business Licence fees as a Value-Added Tax (VAT) contingency as “a bit dangerous”, warning that they would not all be immediately reduced to $100 as previously promised.

Gowon Bowe, the PricewaterhouseCoopers (PwC) Bahamas partner, told Tribune Business that senior government officials had indicated Business Licence fees would not be reduced until the Christie administration was certain VAT was generating the projected revenues.

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.

Mr Bowe added that his voice to those pointing out that VAT-related uncertainty was stifling Bahamian companies, as the lack of information about how the tax will work and impact them individually was making it impossible to budget and plan for 2014.

Describing this as the “disconnect” between the Government and the private sector, Mr Bowe, who is also co-chair of the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) Coalition for Responsible Taxation, said companies were also unable to prepare for the electronic submission of VAT remittances/filing because the system was not even at the testing stage yet.

He told Tribune Business, though, that he was “fairly confident Business Licences will not be reduced immediately” in line with VAT’s implementation, as the ‘White Paper’ had promised.

Mr Bowe based this on answers given, formally and informally, by John Rolle, the Ministry of Finance’s financial secretary, and the extent to which the Government increased Business Licence fees, and altered the rate structure, in the 2013-2014 Budget.

“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.”

He added that the Bahamian private sector would thus likely be faced, in early 2014, with the “considerable three-fold” impact of cost increases stemming from Business Licences, VAT implementation and the actual tax itself.

Mr Bowe said the Ministry of Finance appeared to have thought that the Budget’s Business Licence fee increases would take effect immediately, but that did not happen.

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.

Mr Bowe, meanwhile, said he and the Coalition had been attempting to get “clarity” from the Government on its tax reform plans, so that businesses could project properly for 2014/

Emphasising that this was impossible amid the ongoing uncertainty, the PwC partner added: “A lot of things in the White Paper are not going to take place, or take place immediately.

“We’ve been communicating and saying quite frequently that it’s the uncertainty and understanding by businesses that is the greater concern.

“While the hypothetical White Paper sets out the details, and those are widely understood, it’s the nuts and bolts that have to be understood with VAT.”

Mr Bowe said the private sector was currently unable to test whether their systems were compatible for filing VAT returns electronically because the Government’s counterpart was not yet in place.

Yet, despite this, he added that most in the private sector understood the need for tax reform, and should not use this period to simply dismiss the need for it.

Calling on all parties to ensure that tax reform was a sustainable, long-term solution, not just a one-two year ‘fix’, Mr Bowe said it had to be “viable for the future”.

“We should all be working with the Government and consumer to ensure the right result is achieved,” he told Tribune Business.

“We can’t take one model and drop it in the Bahamas and assume it works the same. Some of the nuances we have, that other territories don’t have, should be factored in. That’s very important, and should not be overlooked.”