The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

PLANS to implement a Value-Added Tax (VAT) by July 2014 are “overly aggressive”, the Bahamas Chamber of Commerce’s (BCCEC) chief executive has warned, arguing that the private sector be given “at least two years” to prepare if the new tax is to work “properly”.

Winston Rolle told Tribune Business that the Christie administration’s proposed 17-month timeline before VAT is introduced did not give Bahamian companies enough time to adjust their business models and operations, or prepare for a “major, fundamental cultural change”.

The BCCEC chief executive added that companies needed to determine whether extra resources, human and technical, were required to comply with VAT’s requirements, particularly the more onerous bookkeepping and accounting demands.

Questioning whether the Government’s planned Central Revenue Agency (CRA) would be “head and shoulders” above what Bahamian companies were used to facing with the Customs Department when it came to tax administration efficiency, Mr Rolle said there were numerous unanswered questions surrounding the VAT proposal.

One included whether a VAT would run alongside Customs duties and Excise Taxes before the latter two were either reduced or eliminated, and Mr Rolle reiterated that “a significant educational process” was required for the private sector to understand how reform would impact them.

“We’ve been having these discussions on VAT for quite some time,” Mr Rolle told Tribune Business. “The key thing is going to be: What’s going to be the implementation plan?

“The thing that caught me by surprise was that 2014 implementation plan. I think it’s overly aggressive.”

The BCCEC chief executive explained: “When you take a look at or give consideration to the significance of VAT, the importance of moving a culture used to being in a non-tax environment to a tax environment, the amount of adjustments that need to be made and considered by the business community, and how it’s going to impact them from an operational and regulatory standpoint, I don’t see 2014 as giving us enough time to do it properly. We need a two-year window at least.”

Noting that public consultation on the Government’s VAT and overall tax reform proposals had yet to begin, Mr Rolle said the administration also had yet to inform specific sectors - such as retailers, wholesalers and food stores - as to the likely impact on each of them.

The BCCEC chief also questioned how a VAT ‘stacked up’ against the current import duties and Excise Tax system, and if there was “going to be a period where we have both ongoing simultaneously”, or if one “kicks in” as the other is phased out/reduced.

“How’s this being co-ordinated with tariff relief in connection with the World Trade Organisation accession process?” Mr Rolle asked.

“There’s a number of things that need to be given consideration as to how we move forward with implementation. Knowing the way we do things in this country, I just think one year is very, very aggressive.

“This is a major, fundamental cultural change for the way we do business in this country. Even though many people are resistant to change, it’s going to require a significant educational process for people to understand how it’s going to impact them, what they should expect........ all these things.”

Mr Rolle said all companies registering as liable to pay VAT, whether it was the 3,798 facing mandatory registration or those choosing to do so voluntarily, would need to provide the Government with audited financial statements to ensure their tax payments were “credible”.

These auditing/accounting costs, he added, were something that companies may “not have factored in before”, and thus require major planning and adjustments.

The Government’s White Paper on Tax Reform, published last week, emphasised that all Bahamian companies registering to pay VAT had to “maintain adequate books and records”, documenting all business transactions in a monthly period.

“Records must be up-to-date and must clearly show the figures reported in the VAT return for the taxable period,” the White Paper said.

Information that must be submitted to the Government includes sales and purchases books; purchase invoices and import/export documents; sales invoices and receipts, and billing invoices; credit and debit notes; income and spending records; cash register tapes and similar records; bank statements; and VAT invoices received and issued.

Acknowledging that the Government introducing a VAT was “a matter of when, not if”, Mr Rolle also questioned whether both PLP and FNM governments had sufficiently assessed other tax reform options.

“As much as we hate having to deal with Customs, it’s something persons have gotten used to, and factor into their whole business model,” Mr Rolle told Tribune Business.

“Now the business model is going to have to change, and some persons are going to welcome the reduction in import tariffs, as it will enable them to purchase more product with the same amount of cash in hand.”

But, Mr Rolle added, the critical question facing many Bahamian companies was: “What additional revenues are we going to need in our organisation to manage and deal with VAT?

“What adjustments do I have to make in my organisation to facilitate management, tracking and proper recording of VAT and, externally, how effective and efficient is the adjustment going to be?

“Is it going to be head and shoulders above what I have to deal with with Customs, or is it going to be worse?”

Mr Rolle said the 15 per cent VAT rate, and the $50,000 annual turnover threshold for determining whether companies had to be mandatory VAT registrants, were in line with those selected by other Caribbean nations.

He expressed concern, though, over whether the Government would be able to check if some firms were above that $50,000 threshold, noting that “the Business Licence process is not as thorough as it needs to be to ensure the numbers reported are actual numbers. There may need to be some validation of those numbers”.

Mr Rolle also noted that many companies were operating in the ‘informal sector’ without a Business Licence, and questioned how they would be dealt with under a VAT.