The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Constant tax policy changes are causing “an enormous amount of angst” in the Bahamian business community, the Government has been warned, causing many businesses to ‘sit on the fence’ and postpone expansion plans.

Dionisio D’Aguilar, the Superwash president, told Tribune Business that the “turmoil” caused by frequent tax policy changes “doesn’t bode well for businesses trying to operate in a stable business environment”.

He added that the changes being introduced on an annual basis with the Budget, coupled with the implementation of a Value-Added Tax (VAT) in 13 months’ time, were fuelling uncertainty and acting as another factor making the private sector hesitant to invest and expand.

Craig A, ‘Tony’ Gomez, the Baker Tilly Gomez accountant and partner, agreed that the Government’s tax policy had become less predictable in recent years, as it struggles to get a grip on its massive deficit and national debt problems.

He suggested that the Bahamas implement a “straight line” corporate tax structure that remained constant, despite changing administrations and Budgets, to assist business planning.

However, John Bain, managing director at the UHY Bain & Associates accounting firm, told Tribune Business that no firm in the world could accurately predict a government’s tax policy year in, year out.

Agreeing that the Bahamian government’s tax policy was losing predictability, Mr Bain said this reflected “the unusual times”, with the Government’s fiscal position having to take priority.

And he pointed out that some tax changes/increases would have been unnecessary if the Bahamas had not elected to suffer the ‘opportunity cost’ of the failed web shop gaming referendum, plus delays in taking control of its airspace.

Ultimately, the end conclusion is that Bahamian tax policy is losing its certainty, continuity and predictability. And the lack of a seamless approach, combined with VAT’s impending arrival, is proving another factor likely holding back business and job growth.

Several cases back up the ‘lack of consistency’ message being sent by current tax policies.

The 2013-2014 Budget’s Business Licence fee hikes are the second time in three years that the Government has introduced major changes to a core ‘tax’ that applies across-the-board, impacting every business in the Bahamas.

Ditto the auto industry, which is faced with going from a tax structure based on the value of imported vehicles to one pegged on engine size, and now back to ‘imported value’ again for 2013-2014 - all within the space of three years.

Focusing particularly on VAT, Mr D’Aguilar told Tribune Business: “There’s no doubt that changing from one system to another system has created an enormous amount of angst among people.

“The introduction of VAT and what it means for business is causing an enormous amount of concern.”

The Government, after issuing its initial VAT and tax reform ‘White Paper’, has begun consultations with various industry groups, but has yet to release many specifics on how the tax will work.

As a result, Bahamian businesses have to-date found it impossible to plan or calculate precisely how VAT will impact them, their cash flow and cost bases, and inventory ordering/supply chain practices.

This led one businessman, Robert Myers, to recently describe planning for VAT, and its potential effects, as “a crapshoot”.

Mr D’Aguilar effectively backed this position, noting that a company which purchased its stock under the previous tax regime could find itself at a competitive disadvantage when set against a rival that had bought its latest inventory in under the new VAT.

The former could be at “an enormous disadvantage” in terms of consumer pricing and cash flow, and Mr D’Aguilar added: “The Government has to be mindful that companies bought stock under the old regime, and all that turmoil doesn’t bode well for businesses trying to operate in a stable business environment.”

In respect to government tax policy, Mr Gomez added: “There seems to be less predictability.

“The question begs: In order to clearly be able to plan for the future, it might be less onerous on business to have some form of corporate tax structure that remains continuous for the future.

“The peaks and troughs of a tax structure, the hills and the valleys, does not lend itself to proper business planning. At times, you can find yourself paying more in taxes than if you had a straight line corporate tax rate.”

However, Mr Gomez said he was unsure if the Bahamas had “reached a point” where VAT’s looming introduction was causing businesses to hold back on expansion and new hires.

Mr Bain, for his part, said the Government had to focus on the public finances. Acknowledging that businesses liked things to be predictable, and plan for events far in advance, he added that “governments don’t operate that way”.

“These are unusual, difficult times,” Mr Bain said. “We need to be creative right now. There’s no text book answer.”

Looking at what the US had done to prevent its own ‘fiscal cliff’ and deal with the Budget ‘sequester’, Mr Bain added: “Rather than do nothing, people are trying to find ways to deal with revenue shortfalls.

“It is unpredictable, but in these circumstances I can understand new, creative methods to raise money..... I don’t think that, as a business, you can do tax planning every year.”

Noting the ‘opportunity cost’ of revenue streams foregone, Mr Bain told Tribune Business: “We have a narrow, narrow tax structure.

“If they had passed the gaming referendum, we would have had additional money coming in. If we had taken control of our air space from the US, we would have had additional money coming in.

“Until something else happens to widen the tax base, and generate extra money, we can only make so many dollars.”

The taxation of web shop gaming, and creating a Flight Information Region (FIR) over Bahamian airspace, have been estimated as generating $20 million and $30 million, respectively, for the Treasury annually.

That would represent a $50 million injection from new revenue streams, and could have alleviated the pressure on the Government to increase taxes in other areas.