0

VAT oversight costs 'nowhere' near $67.5m

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top Ministry of Finance official yesterday said the Government’s costs to administer the proposed Value-Added Tax (VAT) would be “nowhere close” to the $67.5 million projected by a Nassau Institute study.

John Rolle, the financial secretary, said much of the infrastructure needed to collect VAT was already in place, with two-thirds of the revenues generated by the tax set to be collected by the Customs Department.

And he also dismissed the study’s prediction that one-third of the 15,453 Bahamian companies not required by law to register to pay VAT would do so voluntarily.

‘The Economic Consequences of the Value-Added Tax for the Bahamas’, produced by a former Canadian Revenue Agency tax auditor for the Nassau Institute, said that apart from the likely 3,800 mandatory VAT registrants, some 5,115 companies would register to pay voluntarily and significantly add to the compliance burden.

Pointing out that VAT administration costs ranged between 0.2 per cent and 0.4 per cent of GDP, hitting 1.4 per cent in the European Union (EU), the Nassau Institute study said “the Bahamas’ smaller population, absence of a pre-existing VAT structure and more frequent filing would increase this ratio”.

Pegging the Government’s total VAT administration costs at $65.7 million annually, the report estimated that 5 per cent of all VAT remittances, and 50 per cent of all VAT refunds, would be audited by the Central Revenue Agency (CRA).

“Under the assumption that there are 10 remittances for every refund claim, we estimate the audit rate at 10 per cent. This estimate suggests that 10,698 remittances and refund claims will be audited annually,” the author, David Godsell, said.

Taking the Canadian benchmark of 70 hours to conduct a VAT audit on a company with $4 million in sales or less, the Nassau Institute report calculated that 748,860 VAT audit hours would be required annually.

Using estimates for the wages commanded by Bahamian accountants, and the number of hours worked annually by auditors, the study found that 624 auditors would be required - at a cost of $40.872 million annually.

And the Nassau Institute study budgeted $20 million for appeals, plus $4 million for taxpayer services and collections, taking the Government’’s total VAT administration costs to $65.7 million.

These calculations were immediately disputed by Mr Rolle, who told Tribune Business of the final cost estimate: “It’s nowhere close to that. I would not expect the administrative costs to be anywhere near the magnitude suggested; definitely not.”

Suggesting that the Central Revenue Agency would have no more than 200 persons, and that estimate was “at the very high end”, he added: “There is no way we would incur that amount of administrative costs.

“Administrative costs in excess of 10 per cent seem to be unrealistic.”

Mr Rolle told Tribune Business that two-thirds of VAT revenues would be collected by the existing Customs infrastructure, and said: “There is very little cost in administering VAT at the border.

“From a Customs standpoint there are some modifications to the IT system, so they can communicate with the CRA, but Customs will collect VAT similar to the way they collect Stamp Duty or any other fee that accompanies Customs processing.”

While the Government’s White Paper has proposed exempting firms with an annual turnover of $50,000 or less from registering to pay VAT (a figure likely to be increased to $100,000), the Nassau Institute study said experience in France and Canada suggested between 31.7 per cent and 34.5 per cent of those were set to become voluntary residents.

“Consequently, we expect 33.1 per cent of the 15,453 Bahamian firms not required to register for VAT to do so,” the report added.

“This estimate suggests the total registrant number will be 3,800 mandatory registrants and 5,115 voluntary registrants, for a total of 8,915 registrants or 106,980 remittances and/or refund claims per year.”

Mr Rolle, though, told Tribune Business: “I don’ think these estimates are realistic in terms of voluntary registrants.”

While conceding that the Government had made no forecasts of its own here, but said the Bahamian companies expected to register voluntarily were professionals and service providers who supplied larger businesses that were mandatory registrants.

Their voluntary registration, he said, would be required for the larger company to claim refund credits on its inputs.

Comments

The_Oracle 11 years, 4 months ago

This shows that while switching to an internal consumption tax, The Ministry of Finance still has a border mentality. Not withstanding the reams of paperwork submitted to Bahamas customs in quadruplicate already on Import documentation, and the rate at which they "Lose" or cannot find it, this is shaping up to create a national Stagnation day!! As for Bahamas Customs "investigating" anything, good luck, but woe betide the poor company subjected to one!! They make mounds out of mole hills and miss the mountain!!

ohdrap4 11 years, 4 months ago

LOL Not stagnation day. Dionision came up with a better term "Convulsions Day'. People would have convulsions.

Sign in to comment