The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian small businesses will likely incur Value-Added-Tax (VAT) compliance costs that are double those of their UK counterparts, a Tax Coalition co-chair estimated yesterday, describing this as “out of control”.

Robert Myers, speaking after Tribune Business obtained a February 2013 study on VAT’s likely impact on the Turks & Caicos Islands, said he had already expressed concern about the likely compliance burden the tax would impose on Bahamian small and medium-sized businesses.

The report, produced for the Turks & Caicos equivalent of the Coalition for Responsible Taxation, referenced a 2011 study by the UK Parliament, which found that VAT compliance, or administrative costs, alone were equivalent to 1.5 per cent of turnover for small British businesses.

The same study also found that small businesses spent 1.8 hours per week dealing just with VAT administration, and Mr Myers said both these findings added weight to his estimates for Bahamian companies.

The Tax Coalition co-chair told Tribune Business he is estimating that VAT compliance/administrative costs will be equivalent to 1.5-3 per cent of a Bahamian small business’s annual turnover.

“The capacity of their [UK] people versus ours, I can believe it [the cost] will be double,” Mr Myers said. “For the large companies it will be 0-0.5 per cent of turnover, and for smaller companies it will up to 3 per cent.

“The guy doing $380 a day or more of revenue, how is he going to afford to do it? First off, he is not going to have the capacity to do this stuff, as he is trying to grow his business and do other things.

“He’s certainly not an accountant, and third, he’s probably had no proper records or books for God knows how many years.

“How can that guy be VAT compliant? He’s going to have to hire an accountant or an accounting firm.... You look at it as a percentage of sales, and it’s out of control.”

Mr Myers said he had expressed his concerns to the Government over this issue, adding that John Rolle, the Ministry of Finance’s financial secretary, had told him “it’s not going to be that bad”.

Michael Halkitis, minister of state for finance, reiterated yesterday that the $100,000 annual turnover threshold, above which businesses must mandatorily register to pay VAT, was designed to exempt small businesses from the new tax’s compliance burden.

The Minister added that the Government was expecting only 4,000 mandatory registrants, but many observers believe it may get more - especially small businesses who supply larger clients. They will have to register to ensure their large clients have a VAT ‘paper trail’.

Meanwhile, the report for the Turks & Caicos private sector, written by a senior taxation lecturer at Bournemouth University Business School in the UK, highlights numerous concerns and issues raised by the Coalition and others in the Bahamas.

It has numerous uncanny parallels with what is unfolding now in the Bahamas, and it cannot be forgotten that public pressure enabled the Turks & Caicos islands to successfully resist VAT’s implementation.

The report’s author, Richard Teather, in a conclusion likely to catch the eye of many Bahamians, wrote: “VAT is a complex tax, and one that is not well suited to small island economies.”

Like the Bahamas, the Turks & Caicos Islands’ implementation timetable was also “extremely tight”, and Mr Teather said similar nations - such as St Lucia - had “used a four-year period” to design their VAT laws and regulations, implement systems, and train government and business 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.

Elsewhere, the report on the Turks & Caicos focuses on numerous issues raised as concerns by their Bahamian private sector counterparts.

For instance, it said “well-designed” VAT systems allowed large corporate groups, with multiple subsidiaries, to be treated as a single taxpayer.

“There is only one VAT return for each period, rather than one for each company, and so the administrative cost is reduced (for both taxpayer and tax collector),” the Turks & Caicos report said.

“There is no charging and reclaiming of VAT between members of the same group. If there is no facility to form VAT groups, then whenever one group company sells to (or provides services for) another, there is a VAT charge from the first company that is then reclaimed by the second company.

“A VAT group, because it treats all the companies in the group as a single taxpayer, ignores these ‘intra-group’ transactions.”

The Bahamas’ draft VAT Bill and regulations, though, make no provisions for large corporate structures to form such single ‘groups’.

“To have a VAT system without VAT grouping not only increases the administrative cost but it also loses the neutrality of a VAT,” the Turks & Caicos report said.

“Without VAT groups, a business carried on by several companies will have higher VAT costs than one carried on by a single company, and so some businesses will be disadvantaged just because of their corporate structure.”

“Been there, said that,” Mr Myers said. “That would be nice [if we could form VAT [groups].

“We’ve asked about that, we’ve said that, it’s in our submissions. Like everything else, they’ve [the Government] said they’ll consider it, but there’s nothing in the regulations with regard to it at this point.”

The Turks & Caicos report is also in accordance with the Bahamian private sector’s preference for a ‘VAT refund’, rather than the proposed ‘bonded warehouses’, when it comes to transition time for a new tax system.

To ensure Bahamian companies are not ‘doubled tax’, and have to pay 15 per cent VAT as well as pre-July 1 import duty rates on stock sold post-implementation, the private sector is seeking a refund of the VAT payment.

“There should be a transitional scheme for treating part of the import duty on pre-implementation imports as being VAT, and so allowing it to be refunded,” the Turks & Caicos report said.

“They’ve listed every point we have a concern for,” Mr Myers told Tribune Business yesterday, when informed of the report’s contents.

“It sounds like they had many of the same concerns. They seem to be on track with exactly what the Coalition is saying, and we have a few more issues.”