The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is proposing to amend the controversial section in the Value-Added Tax (VAT) Bill that prevents delinquent taxpayers from leaving the island, and will instead require such persons to lodge a bond covering their liabilities.

Michael Halkitis, minister of state for finance, told the House of Assembly that the planned amendment to Section 64 of the VAT Bill was “for the avoidance of controversy”, given the discussion it had created.

The Minister, leading off debate on the VAT Bill in Parliament, said the ‘travel prevention’ measure was not targeted at Bahamians or permanent residents, but instead persons who entered this nation “on a temporary basis” to conduct business.

“For the sake of diminishing the controversy, we will have them put in place a bond to ensure the collection of the VAT,” Mr Halkitis said.

He added that “such a provision is not unprecedented”, with countries such as Grenada, Dominica, St. Kitts and Nevis and Antigua and Barbuda all employing enforcement measures similar to section 64 in the Bahamian Bill.

However, leading private sector executives and attorneys had previously branded Section 64 unconstitutional, and likely subject to legal challenge if ultimately passed into law.

Gowon Bowe, the Tax Coalition’s co-chair, told Tribune Business last month that such a restriction would likely violate constitutional rights relating to a person’s ability to move and travel freely.

He added that it had been “a sticking point” in the initial November 2013 draft legislation, and had now been ‘broken out’ and stated more explicitly in the revised legislation tabled in the House of Assembly last week.

Mr Bowe, a PricewaterhouseCoopers (PwC) accountant and partner, said imposing restrictions on a person’s ability to travel should be the sole preserve of the judiciary and Bahamian court system, not a tax authority such as the proposed VAT Department.

“I am not sure that will stand constitutionally. It would run against movement and free movement,” Mr Bowe told Tribune Business of the VAT Bill’s Clause 64.

“The focus should be on prosecuting those individuals, with their ability to travel restricted only by the courts. That should be purely a court function; that shouldn’t be the ability of the tax authority to restrict a person’s movement.”

Robert Myers, the second Coalition for Responsible Taxation co-chairman, expressed “surprise” to Tribune Business when informed that the ‘travel restriction’ section was still in the Bill.

“That was one we had issue with,” he said. “I’m surprised it’s still in there. There’s no way that will move through [Parliament and the private sector feedback process] unchallenged. You can be sure it will be challenged.

“It was challenged previously by the Coalition. Seizing my passport because you think I’m a tax cheat? That I have an issue with. You must be proven guilty before they start restricting your passport.”

And Fred Smith QC, the Callenders & Co attorney and partner, had warned that if the Government succeeded in getting Section 64 in the revised VAT Bill on to the statute books and enforced it, it would soon seek to apply similar ‘travel bans’ to defaulters on other taxes.

Arguing that Section 64 was akin to something “totalitarian dictatorships” would seek to implement, Mr Smith backed private sector executives who had warned it violated freedom of movement provisions in the Bahamian Constitution.

He was assessing whether to challenge the Section 64 ‘travel ban’ prior to the Bill being passed by Parliament, a move that might not now be needed.

Section 64 would have allowed the VAT Comptroller to prevent delinquent taxpayers from travelling until they pay off their liabilities in full or agree a settlement/payment plan that is acceptable.

The legislation states that persons owing the Government VAT monies “may not leave, or attempt to leave, the Bahamas for an indefinite or prolonged period of time” - although it does not attempt to specify the duration that would meet this criteria.

“Where the Comptroller has reasonable grounds to believe that a person liable to pay tax outstanding under this Act may leave the Bahamas for an indefinite or prolonged period without paying such tax, [the Comptroller] may] issue a certificate in the prescribed form to the Commissioner of Police and the Immigration director, requesting the Commissioner and director respectively to take such steps as may be necessary to prevent the person from leaving the Bahamas” until due payment is made, the revised Bill states.

Those who attempt to flee the Bahamas without making due payment will face either a $100,000 fine or imprisonment for up to a year.

Section 64 appeared designed to prevent foreign owners of Bahamas-based businesses, as well as Bahamians, from running away from their VAT liabilities,

Mr Halkitis, meanwhile, said the Bahamas Electricity Corporation (BEC) was an “instructive” example of why it was better for all goods and services to be treated as ‘VAT-able’ rather than ‘exempt’.

BEC”s ability to ‘net off’, or reclaim, the VAT paid on all its inputs was said by the Minister to be “significant” given that they accounted for 82.5 per cent of its gross output.

“That suggests that value-added in the electricity sector is only 17.5 per cent of gross output,” Mr Halkitis said.

While BEC will now add 7.5 per cent VAT to its bills, had it been ‘exempt’ it would have been unable to reclaim these inputs while not levying the tax on consumers.

“But, as VAT on its inputs would not be creditable, it would pass on the equivalent of 6.2 per cent of VAT in the form of higher electricity prices,” Mr Halkitis said.

“BEC’s commercial customers would be particularly hard hit as they would face higher electricity prices and would have no input VAT to claim as a credit. Their own selling prices, and the VAT that they charge, would also be higher.

“This clearly illustrates how tax cascading can result from VAT exemption.”