The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Compliance will be “one of the greatest challenges” the Bahamas faces in implementing a Value-Added Tax (VAT) or some other form of tax reform, a leading accountant yesterday saying this nation needed to “get serious” about penalising offenders and generating better business data.

Raymond Winder, managing partner at Deloitte & Touche (Bahamas), told Tribune Business that there was “always concern” about the accuracy of available data on the Bahamian business community, given the quality of accounting records maintained by some firms.

While Bills, which bring the Bahamas into compliance with the Organisation for Economic Co-Operation and Development’s (OECD) demands that all corporate entities maintain accounting records for a minimum five years, may help, Mr Winder noted that firms with an annual gross turnover of $50,000 or less would still be exempt.

“We as a country need to be serious about tracking the performance of business enterprises,” he told Tribune Business, adding that without proper accounting records and their maintenance, it was impossible to determine whether - and when - a firm’s turnover exceeded $50,000.

“How do you know if they had $50,000 in sales or $100,000 in sales,” the Deloitte & Touche (Bahamas) managing partner questioned, calling on the Government to levy fines and penalties on firms that failed to keep proper accounting records.

That threshold, or whatever is chosen, will become important in the context of a VAT. Ryan Pinder, minister of financial services, in a hypothetical example last week, said that if a $50,000 threshold - below which firms would not be liable to pay VAT - was chosen, only 3,798 companies would end up paying the tax.

If that happened, Mr Pinder added that less than 15 per cent of Bahamian companies licensed to do business in this nation would be responsible for paying VAT.

To avoid onerous costs and administrative burdens being placed on Bahamian small businesses, Mr Winder said the Government should require that their accounts be certified - not subject to a full audit - by either an accountant or the owner themselves.

“This allows the Government to have a certain level of comfort that the numbers they are getting are reliable,” he told Tribune Business.

“This kind of infrastructure needs to be put in place regardless of whatever form of tax we contemplate in the future. Unless we have the proper infrastructure, we will be challenged to collect the amounts due to government.

“Compliance has always been an issue for the Bahamas, and with the implementation of a VAT it will be one of the greatest challenges.”

Mr Winder acknowledged that there was “a significant gap between micro businesses, small businesses and larger businesses” in the Bahamas.

“Enterprises that are micro businesses have been more profitable than small businesses or businesses slightly larger than micro,” he added.

“There is a considerable turnover of small businesses, from one person to the next, and we’re not seeing the kind of momentum we ought to be seeing from micro to small business, and small business to large business.”

Mr Winder attributed this to then fact that micro businesses were better able to manage their costs, having a sole owner or minimal employees, and operating from a residential house. They might also be run by an entrepreneur in conjunction with other enterprises he owned.

It was when micro businesses tried to make the transition to small businesses that the problems often occurred, Mr Winder said, as the cost base automatically rose.

They now had to rent their own premises and expand the workforce, incurring greater costs, while also becoming more exposed to problems such as pilferage. And they were also having to compete with the increasing tendency of Bahamian companies and individuals to purchase goods in Florida.

Mr Winder, though, said the Bahamas had “to be careful to what extent” it limited the VAT burden to just a few thousand companies.

If the burden was too much, companies would respond by cutting costs, with the likely casualties being their employees.

“We have to be very careful that costs do not impose such a burden that companies have a need to reduce their employees,” Mr Winder said. “We need to constantly broaden the tax base by including new enterprises.”