The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is taking “a significant risk” if it believes just 4,000 businesses will register for Value-Added Tax (VAT), a Tax Coalition co-chair yesterday predicting the number might be double that.

Gowon Bowe told Tribune Business that the Ministry of Finance’s VAT Department needed to have ‘open minds’, and ensure the online registration system could potentially accommodate up to 8,000 registrants - including a significant volume who might apply at the last minute.

He explained that small businesses and entrepreneurs, who might come in below the $100,000 annual turnover mandatory registration threshold, would come under “peer pressure” from larger firms they supplied to sign up.

This is because larger Bahamian companies, which must charge and pay VAT to the Government, will want to do business only with other registrants. This maintains the audit/paper trail required to reclaim, or ‘net off’, the VAT paid on their inputs.

With just 29 applications, from 20 businesses, received during the first two days of online registration for VAT, Mr Bowe said the Government needed to rapidly combat the “wait till the last minute” culture prevalent in the Bahamas.

He urged it to be “very aggressive” in encouraging the Bahamian private sector to register early, possibly employing economic incentives such as lower Business Licence fees to encourage them to do so.

While the Government has consistently stated that it believes the number of ‘mandatory’ registrants to be around 4,000, that figure is likely to be inflated by those businesses choosing to levy/remit VAT voluntarily.

“I would not be surprised if that is a significant number,” Mr Bowe told Tribune Business on VAT registrants.

“In my mind, because of the peer pressure applied by larger business registrants wanting to do business only with other registrants, I see that as a significant incentive” to register voluntarily.

“I would not be surprised if the number expanded to two times’ what they think. If you say we have 17,000 Bahamian businesses, it’s not unreasonable to believe it will be in that region.”

Mr Bowe agreed it was “a concern” if the Ministry of Finance was fixated on there being only 4,000 VAT registrants, and had calibrated its systems accordingly.

“If the [VAT] Department has budgeted in their own minds for 4,000 businesses, the problem is you could get double the number of registrant volumes that you anticipated,” Mr Bowe told Tribune Business.

“That’s a significant risk the VAT Department has to be mindful of. They will need to focus on risk assessment and making sure they can accommodate larger volumes.”

When it came to risk assessment, Mr Bowe said the VAT Department would have to prioritise its 100 largest payers, followed by the remaining 3,900 mandatory registrants.

And he suggested that the Government might end up outsourcing VAT-related auditing and administration of the smallest registrants.

Some mandatory VAT registrants, such as New Oriental Cleaners, have already publicly said they will only do business with other VAT registrants come January 1, 2015.

As a result, small businesses will likely choose to register for, and levy/remit, VAT to keep these product and service supply relationships, taking numbers well beyond the Government’s 4,000 projection.

And Mr Bowe said some entrepreneurs might choose to voluntarily register for “administrative purposes”, and to ensure they were “not caught out” by the new regime.

And the Tax Coalition co-chair said voluntary registration should be welcomed, not discouraged, because it would introduce Bahamian small businesses to the demands of a first-world tax system, and the discipline needed to comply.

“We want persons to register as this is a learning opportunity to get a business to keep records, filings and financials in a regime that demands compliance,” Mr Bowe told Tribune Business.

“For too long, we’ve been behind that. We need to use this opportunity to get more businesses familiar with accounting records, keeping track of what they’re selling and spending.

“Too many people run their personal finances and business finances out of the same pair of pants, and we need to encourage them not to do so.”

Mr Bowe then called for the Government to incentivise early VAT registration.

“I don’t think it was surprising that it was slow the first two days,” the PricewaterhouseCoopers (PwC) Bahamas accountant and partner told Tribune Business.

“I think that in reality, in our culture, we’re always going to wait until the last minute, so other than those taking advantage of the virtual warehouses, there’s going to have to be a strong programme to encourage people to register.”

He suggested that the Government, together with the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) and other private sector organisations, maximise the opportunities provided by upcoming VAT training workshops to drive business registration.

Simply by setting up the computers and online registration systems at these workshops, Mr Bowe said it would likely be possible to capture an additional 30-40 VAT registrants daily.

The Government is hoping to complete registration of the estimated 4,000 mandatory VAT-paying businesses by end-November, and Mr Bowe agreed that the next six weeks will be key - not only to accomplish this, but ready the whole nation for the new tax.

With businesses either concentrating on sales or the upcoming Christmas holidays in December, the PwC accountant expressed concern that VAT registration could suffer an Obamacare-style meltdown if several thousand businesses left it until the year’s final weeks to apply.

“You run the risk of the same thing that happened with Obamacare,” he explained. “With everyone trying to come on board, online at once, they flooded the system.

“We don’t want 2,000 businesses to wait until the very end. It has to all be done over the next two months.

“The Government has to be very aggressive in encouraging people to register early, and even look at ways to incentivise people to do so.”

Mr Bowe told Tribune Business that such financial incentives could take the form of more relaxed, easier VAT transition rules for those companies that registered early.

He also suggested that the Government offer a minor reduction in Business Licence fees for early registrants, arguing that this would not be out-of-step with other temporary government incentive programmes.

Pointing to the recent real property tax amnesty, he added that there was “nothing to say you can’t do the same thing without giving up huge amounts of revenue”.

Mr Bowe, though, quickly emphasised that he was not suggesting that the Government give early registrants a VAT ‘break’.