The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Increasing the compulsory Value-Added Tax (VAT) registration threshold to a $100,000 annual turnover has “strong support” within the Ministry of Finance, as it would still capture almost 98 per cent of economic activity.

Emphasising that the Government had yet to take a policy decision on this, John Rolle, the Ministry’s financial secretary, told Tribune Business that increasing the threshold from $50,000 to $100,000 would only exclude several hundred businesses.

While the Government’s initial VAT ‘White Paper’ had contemplated a $50,000 annual turnover as the threshold above which Bahamas-based companies have to pay the new tax, Mr Rolle said increasing this would allow the Government to concentrate its resources on a smaller number of companies.

And by reducing the VAT administrative burden, the Government will be able to focus its efforts on the 3,000 businesses that generate 97.7 per cent of Bahamian GDP activity.

Responding to Tribune Business’s questions, Mr Rolle said: “There has been no policy decision yet to increase the registration threshold for VAT.

“However, the view that has strong support at the technical levels of the

Ministry of Finance is that it should be increased to at least $100,000.”

He added: “It would have the advantage of concentrating the tax administration resources on a smaller number of larger businesses. Spreading tax collection efforts too thin, over a larger number of firms, poses a greater risk that some taxes would go uncollected, as inordinate attention would be given to smaller taxable operations at the expense of inadequate attention to larger taxable operations.

“The cost of narrowing the focus of tax administration is negligible in the sense that the dollar value of the tax base will be considerably large, and still cover the vast majority of revenue that has to be collected.”

Explaining why this was the case, Mr Rolle said that of the 19,000 companies registered to pay Business Licence fees, just 3,798 - some 20 per cent - had annual turnovers greater than $50,000.

Under the White Paper proposals, these 3,798 companies will have a mandatory obligation to register to pay VAT. They are estimated to account for 98.6 per cent of Bahamian economic activity.

But Mr Rolle said increasing the VAT registration threshold to $100,00 would make a negligible difference, both in company numbers and the level of economic activity covered.

He told Tribune Business: “When the threshold is increased to $100,000, the list narrows closer to 3,000 (about 15 per cent of all businesses).

“However, this narrower list accounts for 97.7 per cent of total sales.

Raising the threshold would not, therefore, significantly affect the total volume of sales subject to VAT. At the same time, though, it would remove the administrative burden of compliance from a larger number of small businesses.”

That will likely bring relief to a greater number of small and medium-sized businesses, as they are freed from the burden of having to implement systems to comply with VAT.

But the fact that the Government is assessing whether to increase the VAT registration threshold to $100,000 is not a great surprise. Michael Halkitis, minister of state for finance, had previously hinted this might happen, noting that it would not make a dramatic difference to registrant numbers or economic activity covered.

And James Smith, one of his predecessors and a former Central Bank governor, had also previously told Tribune Business he expected the threshold to be revised upwards to $100,000.