The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Companies that do not have December 31 financial year-ends are set to face a cash flow ‘double whammy’ from the Government’s proposed Business Licence fee reforms, a well-known accountant told Tribune Business.

Craig A. ‘Tony’ Gomez, the Baker Tilly Gomez accountant and partner, told Tribune Business that such “hard hit” firms will face having to pay for extra months - and at a higher rate - as a result of the Government’s drive to have all companies calculate their Business Licence fee based on the calendar year.

Tribune Business understands that the change, revealed by this newspaper last Monday, has caused further consternation and angst among companies whose financial years do not end on December 31.

With Value-Added Tax (VAT) on the horizon, the mood among many impacted by this is: ‘What more do they want from us?’

Many businesses, including some spoken to by Tribune Business, have for 30-plus years been paying Business Licence fees based on turnover for the 12 months to the end of their financial year, not the calendar year.

But now, the practical effect of the Ministry of Finance’s decision to base Business Licence fee calculation on the calendar year is that those companies with different year ends must pay to cover the extra months.

For example, a business that has a financial year-end of May 31, and has been paying its Business Licence fee due the following March on audited financials for that period, will now have to pay fees to cover an extra seven months to take it to calendar year-end.

Fees to cover the extra months are due by June 2014, and the change also means such companies are caught by the 66 per cent increase, in percentage terms, in Business Licence fees unveiled in the 2013-2014 Budget.

For the company with a May 31 year-end, six of the extra seven months will incur a 1.25 per cent Business Licence fee (for firms with a $5-$50 million annual turnover) as opposed to the pre-Budget rate of 0.75 per cent. Thus it, and others in this position, are effectively being hit with a Business Licence/cash flow ‘double whammy’.

Mr Gomez explained to Tribune Business: “To effect the calendar year basis for Business Licence fee reporting, a number of our firm’s clients have seen a significant increase in their cash outlay because of the additional months of reporting.

“The increase is also sitting upon an increase in the rate of Business Licence tax, so consequently a number of entities reporting on 0.75 per cent are now reporting on a base of 1.25 per cent.

“While that is a 66 per cent increase, it is my view the Government is looking to increase its cash flow through this measured approach,” Mr Gomez added.

“Yet a number of firms are being hard hit by increased demands on cash flow in the near term. You deal with paying the additional months, and have to address the increase in the rate a well.

“From a business perspective, particularly a cash flow perspective, this is another concern for businesses when the base economy is not performing so well.”

The Ministry of Finance’s move to calendar year calculation of Business Licence fees is intended to prepare for 2015, when it will require all 15,000 registrants to pay fees quarterly - a move designed to boost the Government’s cash flow.

In announcing the change, the Ministry said: “Businesses, which now pay their Business Licence fees based on their financial year instead of the calendar year, are still required to submit a certification of their annual turnover for the year ending 31 December, 2013, before 31 March, 2014, to facilitate licence renewal.

“If the financial year of the business is different from the calendar year, the difference between the assessed tax as per the certification and the business’s annual financial statements would have to be paid before June 30, 2014, to avoid the possibility of interest penalty.”

While Simon Wilson, the Ministry of Finance’s deputy financial secretary, had suggested to Tribune Business that only a few companies will be impacted, several sources suggested this was downplaying the effects.

One accountant, speaking to Tribune Business on condition of anonymity, said 38 per cent of his corporate clients - more than one-third - had financial years different from the calendar year.

They also questioned what would happen to those companies who, with a financial year-end different from the calendar year, had already filed with the Government and received their Business Licence for 2014.

The accountant asked whether such a Business Licence would be considered good, or if it would be cancelled under the new Ministry of Finance policy.

They also questioned whether such a firm would have to “make up the shortfall”, meaning pay extra, given that they would not have included the months covered by the higher Business Licence fee rate.

And, with Bahamas Institute of Chartered Accountants (BICA) members required to certify, and verify, the Business Licence fillings for companies with an annual turnover greater than $1 million, the accountant said firms’ costs would also increase.

Those with non-calendar year-ends, he explained, would be required to get the auditors in twice - once for the year-end audit, and once for the Business Licence certification.

The accountant then queried the Government’s stipulation that subsidiaries pay the same Business Licence fee as the parent, asking if this meant they paid no tax, given that holding companies did not. It also made no allowance for the fact that different industries are subject to different tax rates.

One businessman, whose company will be impacted by the Business Licence fee change, said the relevant Act called for taxes to be calculated based on “the preceding year”, or any other accounting period permitted by the Government.

Given that his company had been calculating, and paying, Business Licence fees based on its financial year-end for 33 years, he suggested: ‘I think a precedent has been set. This is putting people on edge.”