The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chief executive yesterday said he was “astounded” by government figures showing less than 4,000 companies would be liable to pay Value Added Tax (VAT), adding that this emphasised the urgency of passing legislation designed to strengthen the small business sector.

Questioning the data’s accuracy, Winston Rolle told Tribune Business that, if correct, the figures provided evidence of the need for the Bahamas to reduce its reliance on large, foreign-owned companies to contribute “the lion’s share” of economic activity.

Reacting to comments by Ryan Pinder, minister of financial services, that just 3,798 Bahamas-based companies would likely face having to pay VAT, Mr Rolle said he found that number - and others - “hard to accept”.

Questioning whether the numbers had been recorded correctly, and if companies were not paying their due Business Licence fees, the BCCEC chief executive said there had to be more Bahamian companies generating an annual turnover of more than $50,000.

Mr Pinder said this sum was the initial threshold, below which companies would not pay VAT, that was used by the Government to determine where liability might fall. Yet Mr Rolle said Bahamian businesses generating $50,000 in annual top-line revenue were typically one and two-person ‘Mom and pop’ operations.

Mr Pinder had told the Rotary Club of Nassau on Tuesday that more than 85 per cent of licensed Bahamian companies fell below that $50,000 turnover threshold, meaning they would not be liable for tax under a VAT regime.

While the Government felt reforms to a VAT tax structure could generate an extra $100 million in per annum revenues for it, Mr Pinder said the data showed that the 3,798 businesses expected to pay it accounted for 98.6 per cent of the Bahamian economy’s gross turnover.

The Minister did not indicate where these figures came from, but it is likely they were derived from tax reform work done internally at the Ministry of Finance. They may well appear in the tax reform ‘White Paper’ that the Government has now been promising to release for several months.

Nevertheless, the figures revealed by Mr Pinder raise a number of questions, not least of which is whether switching to a VAT-dependent system will actually broaden the tax base as promised.

VAT had been touted as broadening the tax base by catching services industries within its reach. This sector accounts for the majority of Bahamian economic activity, and is currently little-taxed, but Mr Pinder’s figures indicate that the burden of paying a VAT tax will fall on a minority - less than 15 per cent - of all local companies.

Describing the potential narrow VAT tax base as “a scary thought”, Mr Rolle said the numbers disclosed by the Minister of Financial Services “open the door” to discussions on a variety of critical topics that the Bahamas urgently needed to have.

“I’m just astounded by that number of companies that it will impact,” Mr Rolle said of VAT. “That figure astounds me - that the majority of our businesses have less than $50,000 in turnover.

“There has to be a larger share of companies generating $50,000 or more in revenue. I find that number very hard to accept.

“I’m trying to figure out why there are so very few companies over $50,000. How many businesses are under a $50,000 annual revenue stream in the formal sector? I think most of the businesses under $50,000 are in the informal sector in any event.”

Mr Rolle agreed with Mr Pinder that the fact more than 85 per cent of licensed businesses had annual turnovers of less than $50,000 indicated that many small businesses were either failing, or not making the transition to larger, sustainable enterprises.

“What he’s also done is speak to why we need that Small and Medium-Sized Enterprise legislation so urgently,” the BCCEC chief executive said.

“The majority of businesses are small businesses, which is why they need sustained consideration, so that they can grow and contribute to the tax base.

“There are a number of small businesses out there who are struggling to sustain themselves, and if we use that $50,000 threshold, we are not doing enough to get them to be active participants above that.”

And Mr Rolle added: “It just goes to show that we need our business community to the point where we’re talking about strong, vibrant companies that can employ a number of persons, but also make significant contributions to the economy.

“And not be so reliant on large foreign companies to make up the lion’s share of contributions to our economy.”

Questioning what the figures quoted by Mr Pinder had been derived from, the BCCEC chief executive said the exemption threshold chosen - and mechanism by which it was derived - were key.

“There are lots of things to consider when establishing that threshold, which relate to the size of the company, its revenue streams, the company’s ability to be in compliance,” Mr Rolle told Tribune Business.

Agreeing that small businesses, that lacked proper processes and accounting records/systems, should be exempt because it was impossible for them to comply with a VAT tax, he added: “The key is what mechanism is used to determine that threshold, and it has to make sense both from a revenue and business perspective.

“It does not make sense putting a threshold in place where you tax businesses that will not be able to comply. The process of going through and complying will be very onerous for a small business.”

Noting that there were likely numerous companies generating more than $50,000 in annual turnover, but not paying licence fees or other due taxes, Mr Rolle said: “Do we have enough incentive to bring them into the formal sector?

“This opens the door to show there’s a whole lot of dialogue we need to start having about reorganising the tax base. We need to understand who the players are, who is going to be impacted, and what the real net result is from broadening our tax base. The sooner we start having these discussions, the better.”