The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government must “drill down further” and obtain greater evidence to confirm its suspicions that many companies are under-reporting annual turnover to evade full payment of Business Licence fees.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) Economic Development Committee, told Tribune Business that “greater assessment” and analysis was required to back the concerns voiced last Thursday by Shunda Strachan, the Department of Inland Revenue’s acting controller.

Voicing scepticism that fewer than 20 percent of businesses meet the VAT registration threshold, she demanded that the private sector “be truthful” and said the Department of Inland Revenue will “this year be asking questions” amid suspicions that “most businesses don’t really report their true turnover” for Business Licence valuation purposes.

Speaking at the first Prime Minister’s Office media briefing for 2023, Ms Strachan said that out of nearly 50,000 companies with Business Licences “only about 9,000” - some 18 percent - meet the annual $100,000 turnover threshold that legally mandates they must register to collect and remit VAT to the Government.

She openly voiced doubts as to whether the remaining 40,000-plus Business Licence registrants all have annual turnovers below the $100,000 mark, saying: “I don’t know about that.” However, when asked whether this made out a convincing case that many Bahamian businesses are deliberately under-reporting turnover (total sales revenues) to avoid or evade full Business Licence fee payments, Mr Edwards said: “I think there’s a deeper analysis which is necessary.

“When you take into consideration the fact that a lot of companies in The Bahamas, a number of companies within that overall basket, may be holding companies or shell companies and not necessarily trading, I believe they would need to drill down further to make a determination on which of those companies are doing actual business.

“I’m not sure on the basis of her assessment.... One could argue that on the basis of the information provided so far there is a need for greater assessment.” Mr Edwards conceded that the Department of Inland Revenue chief likely had access to information supporting her suspicions that has yet to be disclosed publicly, such as data on the amount of economic activity taking place in The Bahamas.

Ms Strachan, in calling for honesty, last week pledged that the Department of Inland Revenue will take a keen interest in verifying the accuracy of gross turnover figures that all businesses - regardless of size and top-line revenue - must provide in just over two weeks’ time by January’s end.

Warning that the tax authorities will “say ‘hmmmm’” to the likes of liquor stores and fast-food restaurants reporting annual sales revenue below six figures, she added that the Department of Inland Revenue will be conducting both “desk” and field audits to verify turnover submissions, and request information such as monthly electricity bill payments to determine how active companies are.

“That is something which the Government has to grapple with in terms of taxation ,” Mr Edwards said. “Enforcement will always be an important factor, an important element. It’s for the tax administration to figure out where persons are, what the level of turnover is in those entities and make sure where people are avoiding or evading tax because they are disclosing the incorrect turnover level that is corrected.”

Suggesting that Ms Strachan may have been “floating” her concerns publicly in a bid to dissuade companies from under-reporting their turnover, the ORG executive added: “We have to put some level of trust and confidence in these public officials. I think they would have done their homework, and have some indication of some things.

“They may be kind of floating it out there so that if persons are moving in a particular direction they can self-correct before enforcement comes to them. It’s for the tax administration to ensure the rules are enforced, and for the tax administration to ensure the Government secures the intended level of revenue without it being overbearing on wider society and the economy.

“If there are individuals out there not paying their fair share, there are other persons carrying the load, and the more persons paying equitably the better the load is spread and we avoid discussions around increasing taxes. It augurs well across the board that whoever has tax obligations that they step forward and fulfill those obligations to the country, and on the part of the tax administration they bring to bear whatever resources and mechanisms they have to collect.”

Mark A Turnquest, the 242 Small Business Association and Resource Centre’s (SBARC) president, also told Tribune Business that the Department of Inland Revenue needs to provide more had evidence to support its suspicions that multiple Bahamian companies are deliberately under-valuing turnover for Business Licence valuation purposes.

He said of Ms Strachan: “She needs to do an investigation to prove otherwise. They need to increase their workforce so they can do a proper investigation. She just can’t assume; they need evidence.”

He countered that many of those 41,000 businesses, who the Department of Inland Revenue chief said report annual turnovers below $100,000, are either sole proprietors working from home or small ‘Mom and Pop’ stores that with turnovers just sufficient to provide a middle class family income. Many have been struggling to keep the doors open and be lucky enough to keep one person employed.

Mr Turnquest said: “They need to have an audit of all of the businesses, pay for the audit and go from there. That’s how it is. The Department of Inland Revenue is also making another mess with regard to garnishing the rent to go to government from the landlord in case the landlord is not up to date with their taxes.

“They have to tread carefully on how they want to increase their VAT, and that’s why it’s so important that they speak with our organisation before they make any accusation and deliberate activities or some policy changes.”