The Tribune

By DANA SMITH

Tribune Staff Reporter

dsmith@tribunemedia.net

AMID concerns over the government’s planned Value Added Tax regime, International Monetary Fund director Alejandro Werner explained yesterday how a VAT scheme would prove to be a “very efficient” tax system.

Noting that he was speaking in a general sense, the director of IMF’s Western Hemisphere Department said tax systems should have “a very strong base of indirect, consumption taxes” which would promote investment, economic activity and growth.

“Within the choices you have for an indirect and consumption tax, I think the VAT, it’s very efficient in its implementation, its characteristics, in which basically you tax the value added in each state of the process of a product. (It) generates a lot of incentives for self-enforcement and that makes it a very efficient tax,” Mr Werner said.

“It also creates an even tax between different products, that when you don’t have a VAT and you have a sales tax in every stage of the chain of production and eventual sales, you might end up with products that have an implicit, final tax charge that is much higher than others – depends on how many links in the chain they had. So in that sense, a VAT is a much better designed, well thought, efficient tax.”

Mr Werner also pointed out that VAT is a tax scheme that most modern tax systems currently have.

Noting concerns that consumers and businesses might have over additional taxes, Mr Werner explained governments can use the tax revenues to fund various social programmes for the benefit of the country.

“I think that’s the most efficient way to manage these concerns that people might have and that’s what we have seen in other countries,” he said.

Mr Werner noted that he doesn’t know “fully” the details of the Bahamian economy – “however, when you look at any country, the two pillars of a tax system should be a VAT and an income tax...”

According to the government’s white paper on VAT, one of the undeniable strengths of a VAT system is that it requires registrants to maintain adequate books and records, documenting business transactions completed for the filing period.

Records must be up-to-date and must clearly show the figures reported in the VAT return for the taxable period. These books and records, including electronic data, must include the following:

• purchases and sales books

• purchase invoices/import and export documentation

• sales invoices, sales receipts, services billing invoices

• credit or debit notes

• income and expenditure records

• cash register tapes or similar records

• bank statements

• VAT invoices received and VAT invoices issued

• accounting instruction manuals, systems, programmes and any relevant documentation in use to describe the accounting system.

The proposed VAT legislation will require the registrant to issue an invoice for every taxable supply made to another VAT registrant, which must contain all information as prescribed in the legislation. A VAT invoice will not be permitted to be issued to an unregistered person; instead a sales receipt must be issued stating clearly the amount of VAT charged.

Registrants will be required to produce information that will enable the tax administration or authorised persons to determine a registrant’s liabilities and obligations, or the amount of refund to which a person is entitled.