The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Value-Added Tax (VAT) will not succeed without the banks driving Bahamians to a ‘cashless’ society, a leading businessman warned yesterday, adding that reforms would be “a disaster” unless accompanied by “ruthless” enforcement.

Dionisio D’Aguilar, Superwash’s president, told Tribune Business that the fact 90 per cent of consumer retail purchases were paid for in cash created the perfect conditions for VAT evasion and fraud unless the Government got implementation right.

Noting that Bahamians were “experts at non-compliance”, Mr D’Aguilar urged the Government to counter this by pushing commercial banks into making the use of debit/credit cards far more attractive.

Increasing their use as a payments mechanism, he added, would create an electronic ‘paper trail’ making it much harder for Bahamian companies to under-report sales and the amount of VAT payable to the Treasury.

Mr D’Aguilar indicated that this help was the least the Government could expect from Bahamian commercial banks, given its “reluctance” to task them, as illustrated by the 0 per cent VAT rate it planned to apply to financial services.

He also suggested that the Government “price control” the per transaction fee levied by banks for the use of credit/debit cards, which is now reaching 5 per cent.

“It’s going to be transformational and very, very difficult,” Mr D’Aguilar said of VAT implementation. “Bahamians are very resistant to change.

“Most people are sceptical that they [the Government] will pull this off, and they need to show they mean business and will enforce collection of a VAT ruthlessly, because if they don’t they will have massive non-compliance, as they do with Business Licence fees, NIB contributions and real property tax.”

Noting that some countries ties VAT payments to electricity bills and compliance with other taxes, Mr D’Aguilar added: “Until they address these issues, the feeling in the marketplace is that there will be massive non-compliance.

“That would be a massive disaster. They have to figure that out. Bahamians are experts at non-compliance.”

While the Government’s proposal requires that only those companies generating an annual turnover greater than $50,000 must register to pay VAT, the Superwash president said it needed to find a low-cost way of verifying that those firms saying they earned less than this benchmark were actually doing so.

This was where the banks, and a modern electronic banking system came in, Mr D’Aguilar urging the Government to engage the commercial banks on moving the Bahamas to a cashless society as this - and VAT compliance - went hand in hand.

The Government believes a VAT will be self-enforcing to some extent, given that many Bahamian companies will likely seek to claim ‘credits’ for VAT paid on inputs to their businesses - such as raw materials and supplies.

To claim these, they will also have to submit VAT to the Government on their sales, and any discrepancies between ‘inputs’ claimed and VAT paid would likely show up.

However, Mr D’Aguilar said the widespread use of cash, coupled with limited use of credit and debit cards, and cheques, created an environment conducive to VAT evasion/fraud by encouraging slack recordkeeping.

“I would say 90 per cent of our transactions are in cash,” he told Tribune Business. “There’s not widespread use of debit cards because of the fees.

“If they reduced the fees to a minimum and drove the economy to plastic, not only would you create a mechanism far easier to audit than one where everyone was using cash, but the conversion to using cards would be much better.

“If someone is paying by credit card or debit card, it’s much more difficult for businesses to hide their sales volumes. The Government has to think how it gets people to comply without auditing all these books - it’s impossible. You have to get people to pay the correct amount and disclose what their sales are.”

Questioning why the Government was proposing to tax financial services so lightly under a VAT, given that it was one of the economy’s most profitable sectors, Mr D’Aguilar called on the Christie administration to stay the course in the likely case of public resistance to tax reform.

“This is not something we can joke around with,” he added. “The Government needs to get its revenue, and if it doesn’t it’ll have to borrow more.

“VAT will be very unpopular when it comes in. The PLP has to ride out the storm, and if they fold when it comes out, it’ll be a disaster.”