The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas “doesn’t want to be setting a precedent” for the fastest-ever Value-Tax (VAT) implementation in the Caribbean, a Tax Coalition co-chair said yesterday, after it was revealed that similar nations took four years.

Gowon Bowe told Tribune Business that the July 1 implementation deadline was one of the first issues that the Coalition for Responsible Taxation raised with the Government, arguing that it needed to be “rethought” because preparing for tax reform was “a mammoth task”.

The PricewaterhouseCoopers (PwC) Bahamas accountant and partner was speaking after Tribune Business obtained a February 2013 study on VAT’s likely impact on the Turks & Caicos Islands, a nation with a similar economic structure to this country.

The report, compiled by a senior taxation lecturer at Bournemouth University’s Business School in the UK, effectively said the Bahamas is attempting to implement VAT in less than half the time taken by other Caribbean nations, such as St Lucia.

That island’s private sector is now pushing to have the tax reduced, or repealed altogether, but it started preparing for VAT - eventually introduced on October 1, 2012 - in October 2008 when it set up its own implementation unit.

Noting that the Turks & Caicos had attempted to bring VAT in on an “extremely tight” schedule (it was eventually shelved), the report’s author, Richard Teather, said: “VAT requires forward planning by businesses (especially those in long-term contracts such as the tourism sector) and training.

“Equivalent jurisdictions have used a four-year programme to design the VAT law, implement appropriate systems and train business and government staff.”

Using the February 2013 release of the Christie administration’s VAT ‘White Paper’, the Bahamas is trying to implement tax reform in less than half that time - 18 months. And, taken from the November 2013 release of the draft legislation and White Paper, the timetable is even shorter - eight to nine months.

Mr Bowe said of the Turks & Caicos report: “That sounds consistent with our message at this point.

“It’s a complex tax system in terms of how it’s administered and implemented. From that perspective, I spoke to some colleagues in Trinidad and Jamaica, where VAT was implemented 20 years ago, and they said you need at least an 18-20 month timeline to get businesses comfortable with it, understanding how it works.

“We’ve been trying to do it in less than 18 months, and the legislation and draft regulations came out in November, leaving less than nine months [to July 1 implementation],” Mr Bowe added.

“We have to make sure..... We don’t want to be setting a precedent with such a fundamental change in our tax system. We want to make sure it’s well-defined, well thought-out and accurate.”

The Tax Coalition co-chair said the VAT implementation timeframe was “one of the biggest things” the organisation raised with the Prime Minister’s Office and Ministry of Finance from the get-go.

Mr Bowe said the prime concern was “the feasibility of getting people ready”, both from the private sector and public sector standpoint, and consumers.

“It’s a mammoth task, and [the timeline] seemed to be aggressive and needed to be re-thought,” he told Tribune Business.

Elsewhere, the Turks & Caicos study highlighted numerous parallels with the Bahamas and the VAT-related concerns of this nation’s private sector.

Many businesses have been pushing to file quarterly VAT returns, rather than the monthly submissions demanded by the Government, and the study reveals that many UK small businesses submit only one annual VAT return.

“In the UK only a very few businesses complete monthly tax returns; most do quarterly returns, and the smallest businesses only have to submit a single annual VAT return once a year,” the Turks & Caicos study said.

“Turks & Caicos appears to have adopted a monthly system for all VAT-registered businesses, and so the cost of collecting and administering VAT will be even higher than it is in the UK.”

And its author added: “A VAT requires much higher levels of bookkeeping and record keeping than other taxes.

“The rapidity of the introduction of VAT will have made it difficult for smaller business owners to have digested the VAT law, worked out how it applies to their business, designed processes and administrative systems to comply with the law, and trained their staff in how to operate them.”

The Turks & Caicos study also called for a ‘light touch’ approach to VAT enforcement in the initial stages, to give companies time to come to terms with their obligations.

This stands in contrast to the Bahamian government’s ‘hard-line’ stance of a Revenue Court and some 40-50 penalties for VAT-related offences.

“The impact of VAT on business administration is huge, and the administrative costs of dealing with VAT are significant for businesses and government,” the report said.

“As has already been pointed out, this will require additional recruitment and training, and it is not certain where the additional recruits, or the time to train them, will come from.”

The study added: “Unfortunately, this means that some businesses will fail to comply with the new VAT laws. Some will make honest mistakes, some will struggle because of lack of training or suitable staff, and others may simply decide to ignore the whole system and operate illegally without registering for VAT.

“For this reason new tax systems are generally accompanied by a ‘light touch’ enforcement regime for the first few years, with the emphasis on checking VAT returns and educating businesses in their legal obligations and encouraging them to register.”