By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
There is “no 100 per cent escape” from the proposed Value-Added Tax (VAT), a senior official has warned, while acknowledging the private sector must realise the Government is “serious” about collecting all due revenues.
John Rolle, the Ministry of Finance’s financial secretary, said even those businesses that fall below the mandatory VAT registration threshold - whether it be $50,000 or $100,000 - would come into contact with the system when they purchased from their larger counterparts.
And he agreed that VAT enforcement and administration would be vital from day one if the new tax was to generate the promised increase in revenues, and help fill the Government’s massive fiscal holes.
Responding to concerns that the cash-based nature of most Bahamian-owned businesses would facilitate widespread VAT evasion and fraud, Mr Rolle said the tax’s nature - and the desire of businesses to receive ‘credits’ for VAT paid on their inputs - would act as a self-enforcing mechanism.
“I don’t think there’s any tax system that’s perfect in getting every taxpayer to properly comply, but the way this [VAT] system works provides many more incentives for taxpayers to comply,” Mr Rolle told Tribune Business.
“Businesses have to be able to claim credits, exemptions, and that means at every step of the transaction, the Government is able to realise some of the tax.
“It’s up to the business to show, at the end of the day, their tax liability is only a certain amount. They have to provide a document trail. If you are a part of the VAT regime, you are going to have to be issuing receipts.”
While acknowledging that cash-based businesses accounted for a certain segment of the Bahamian economy, Mr Rolle said that by concentrating its enforcement and administrative efforts on the 3,000-plus largest companies, the Government’s tax base would still cover 97-98 per cent of all economic activity.
“There is no 100 per cent escape,” he told Tribune Business. “If they’re [businesses] selling goods, unless they’re smuggling them, they have to encounter Customs at the border.
“And they will encounter VAT in terms of purchases they have to make from larger businesses. In many cases, cash-based businesses have to buy from larger businesses. It will not be a 100 per cent loss of revenue from small businesses.”
VAT fraud in large economies, such as the UK, typically occurs with cash-based businesses. Given that much of the Bahamian economy operates in such a fashion, similar fears have surrounded this nation’s potential implementation of VAT.
“The most serious fraud we want to safeguard against, and that is illegal to do, is cash-based businesses that charge VAT on their sales and pocket it, or where the business reaches a ‘middle ground’ with the customer and some difference is pocketed,” Mr Rolle said.
“Both are transactions where criminal consequences could follow.”
The Financial Secretary agreed that enforcement would be critical to VAT’s success, and the business community needed to realise the Government was serious collecting everything due to it.
“It’s going to be very critical in the early days of the system to have that confidence develop, in terms of the administration and approach, as to how serious and determined we are to collect the revenue through the enforcement and being able to apply penalties as the law might dictate,” Mr Rolle told Tribune Business.
“It’s going to be very important businesses know the Government is serious about collecting the tax.”
Comments
The_Oracle 11 years, 3 months ago
If Government is as serious about VAT as they are crime, legal prosecutions, garbage collection, Building permits, shanty town creation, etc etc We are in for total mayhem. Which is why they will not reduce import taxes until they have banked some additional revenue. Like N.I.B. contributions, Some seem immune from compliance. The E.U has a huge Cash based underworld Economy, growing day by day. The bigger the hurdle, the incentive there is to go around it.
My5Cents 11 years, 3 months ago
Everything with governments is just about collecting more and more money what people gatta work hard for..the more you make and harder you work, the less you deserve..Why not cut spending? All this budget deficit and GDP growth still ain't enough..Cut back on spending and increasing taxes and instead let the people spend the money in the economy rather than collecting it for these crooked politicians to waste..Sick of the world and their tax ideas
My5Cents 11 years, 3 months ago
Take all these government cars from these workers and politicians...let them buy they own damn cars.They don't need no incentives..plenty people out there willing to do they job for half of what they getting.
concernedcitizen 11 years, 3 months ago
VAT collection will be selective w/ certain companies not paying while the PLP is in ,,just like NIB ,,My good Lord is that the same John Rolle that was in charge of customs ,,how many of these operatives can they dig back out of the woodwork ,,
concernedcitizen 11 years, 3 months ago
I have come to the conclusion the new ,new PLP is more corrupt then the old ,old PLP ,,geez how many donations you got to give King Eric for a three boat reggatta if you want something from gov ...
The_Oracle 11 years, 3 months ago
Why have a threshold at all? Is that not discriminatory? Talk about reducing us to a nation of One room shops! What idiot would invest and try to grow beyond $50 or $100k if one is "penalized" for doing so? Our Government has colluded with foreign bureaucracies and entities to our detriment, joining All Governments in the pillaging of privately held earnings and wealth.
jerzy 11 years, 3 months ago
VAT will not happen if it is clear that the party implementing it will be voted out at the first opportunity. If you do not think VAT will be of any benefit to the the Bahamas, make it clear that it will force you to vote for a party that will repeal it.
It is up to you.
My opinion is that it will not be beneficial... but I am in the TCI and do not have the same level of economic knowledge about the Bahamas. Nonetheless there seem to be a number of similarities that would appear to make VAT a foolhardy choice.
My advice is to demand proof of tangible benefits to the Bahamian economy... most of the claimed benefits are boilerplate that would only be true in larger economies.
Some of the bogus claims are as follows:
Tax simplification - VAT is a complex tax compared with property tax or import duty.
Self enforcing- VAT is only self inforcing with many stages of production... mostly not applicable to the Bahamas.
Efficiency - VAT is not as efficient as import duty or property tax... the high C-efficiency that is quoted for small island economies is totally misleading because it is a directly atributable to a high level of imports versus exports and does not indicate that the performance is especially good.
VAT is not regresssive - VAT is on of the most regressive taxes. If there is income tax, the tax burden on the poor can be alleviated by increased the tax thresholds. Without income tax there are few if any ways to make the tax system more progressive. Having VAT exemptions, or zero rating, does little to shift the tax burden from the poor. In reality these exemptions actually favour the rich in net terms because they generally consume more.
VAT improves international trade - All the empirical data so far has indicated that this expected effect has not materialised in practice, and the net effect of VAT is reduced international trade.
VAT is simple to administer - VAT is among the most complex taxes to administer along with income tax, corporation tax, turnover tax and tax withholding.
VAT is easy to enforce and collect - VAT has relatively low levels of compliance and high levels of fraud. It is much easier to collect in larger more sophisticated economies but even then there are serious difficulties.
This list is by no means exhaustive...
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