The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Baker Tilly accounting firm’s global head yesterday described Value-Added Tax (VAT) as “the most complex of taxes”, mandating that its Bahamian affiliate become “an expert” on the issue.

Geoff Barnes, Baker Tilly International’s president and chief executive, said it was vital that Bahamian companies be “very clear” on cash flow management and financing in a VAT environment, especially those businesses that sell a mix of taxable and ‘exempt’ goods.

Speaking to Tribune Business during a visit to Nassau to meet with the network’s Baker Tilly Gomez affiliate, the London-based Mr Barnes also described the costs associated with collecting VAT in the UK as “enormous”.

“VAT historically has been the most complex of taxes,” Mr Barnes told this newspaper, noting that it involved far more than simply paying 15 per cent on an invoice.

“Our tax partners believe VAT is the most complex of taxes, with the exception of inheritance tax.”

The Baker Tilly chief’s comments will likely add to private sector concerns that VAT is not the best tax reform solution for the Bahamas, given its complexities and associated administrative costs.

The Coalition for Responsible Taxation has repeatedly argued that the Bahamas should opt for a payroll tax, citing as advantages its relative simplicity, the likelihood it will be better understood, and the ease of collecting it through the National Insurance Board’s (NIB) existing infrastructure.

Much of the VAT opposition has been fuelled by the Government’s failure to properly educate businesses, and consumers, on how the tax will work, and the Baker Tilly chief said it was incumbent on the administration to “go the extra yard” in including all parties in fiscal reform discussions.

“It just reminds us all that government has responsibility for transparency and to bring the community along with these proposals,” he told Tribune Business.

“It requires government and its agencies to go the extra yard to bring people into the discussions.”

Mr Barnes, meanwhile, confirmed that in meetings with Bahamian regulators and government officials, he had offered to give them access to the VAT/tax expertise that resides in Baker Tilly’s global network.

The accounting firm has affiliates in 140 countries, and the Baker Tilly chief said: 
“We were talking about networking expertise to see if they’d be interested in talking to our experts about some of the do’s and don’t’s.

“You don’t want to go down the path other nations have found not helpful, and certain sectors are taken out of the compliance zone.”

While acknowledging that all economies have their unique features and “idiosyncrasies”, Mr Barnes said the Government’s decision to bring in VAT experts from New Zealand “must be extremely helpful”.

“This is a major, major step for the country,” he added of the proposed VAT reforms, “and any advice on the do’s and don’ts, the new system, should be sought. It’s a well trodden path. Why reinvent the wheel?”

Mr Barnes said virtually all countries now had some form of sales or consumption tax, with 150 nations having opted for VAT.

He reiterated, though, that companies with mixed inventories - selling products that were ‘VATable’, and others that will be classified as ‘exempt’ - will need to take particular care.

UK firms often faced situations of “irrecoverable VAT”, meaning they were unable to recover the ‘input tax’ they paid to suppliers on goods they sold as ‘exempt’.

“You’d better be very clear on cash flow projections and financing of the company to deal with that cycle,” Mr Barnes warned.

This issue is especially vexing for supermarkets and resorts with casinos, such as Atlantis and Baha Mar.

With casino gaming currently being treated as ‘exempt’ under existing VAT legislation, these resorts will be unable to recover tax paid on inputs related to this segment of their business.

Ditto food stores, who presently will be unable to recover input tax paid on that portion of their inventory which will be ‘exempt’ from VAT.

Mr Barnes said food was treated as VAT ‘exempt’ in the UK, a major difference from the Bahamas, which is proposing to only ‘exempt’ certain breadbasket items.

The Baker Tilly chief, though, praised the Government’s decision to set a mandatory annual turnover threshold below which Bahamian businesses do not have to register to pay VAT.

“That’s extremely important,” Mr Barnes said. “It’s to take away from a hard working,, small business unnecessary cash flow implications and red tape.”

Noting that this fitted with the general global trend of trying to remove regulatory burdens on small businesses, Mr Barnes added: “This, I think, will fall in line with that.

“It’s trying not to distort the bedrock of the commercial structure for people trying to earn a living and add value to the community.”

The Christie administration is proposing that this be set at $100,000, leaving less than 3,000 businesses as mandatory VAT registrants.

Mr Barnes, though, called on the Bahamas’ final VAT legislation to lay out clear parameters for ‘graduating’ businesses into mandatory registrants once they exceeded the $100,000 turnover threshold.