The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government must accept that Value-Added Tax’s (VAT) smoother-than-expected implementation to-date is due more to the private sector’s efforts than its own, the Tax Coalition’s chairman said yesterday.

Gowon Bowe told Tribune Business that while VAT’s initial roll-out phase had gone better than many in the private sector had anticipated, this was largely due to the business community’s “maturity” in accepting - and complying with - the new tax.

“I would concur with that,” Mr Bowe replied, when asked whether VAT’s first month had functioned far more smoothly than many ‘doom and gloom’ merchants had predicted.

Yet he quickly added: “That’s in part due to the maturity of the private sector, not making mountains out of mole hills.

“Yes, there have been some bumps in the road, and areas needing clarification that still have to be addressed.

“But after the initial pandemonium and reaction, the private sector calmed very quickly and is being very prudent in asking for guidance, and is raising concerns in a very diplomatic manner,” the Coalition for Responsible Taxation’s chairman continued.

“It needs acknowledgement from the Government. It [VAT] was not rolled out smoothly as a result of their efforts; it rolled out more smoothly because the business community accepted they had to do their part to make this a success.”

While many in the Ministry of Finance and VAT Unit may dispute this, Mr Bowe’s comments are likely to find significant backing within the private sector.

However, one area where the Government and the Tax Coalition chairman are on common ground is over the VAT Unit’s decision to send out letters levying fines/penalties on almost 200 mandatory business registrants who failed to meet the November 30, 2014, registration deadline.

Mr Bowe said enforcement on this particular issue was vital to establishing “a level playing field” between businesses on VAT, especially given that high compliance rates are critical to the tax’s success - and that of wider fiscal reform.

His only reservation was that the VAT Unit had done sufficient due diligence to ensure it was levying fines correctly, recalling how earlier ‘sanction’s letters’ had incorrectly been sent to companies selling goods that were not VAT-able.

“I think it’s good to get the ball rolling on this,” Mr Bowe said of the VAT Unit’s decision to levy ‘late registration’ fines.

“It at least indicates that they’re doing due diligence on those who are required to be registered, but are not. It shows they are using their internal sources to identify those in breach of the law. It’s a positive thing, as we need to have a high compliance rate.”

Mr Bowe suggested the VAT Unit was using past Business Licence fee payments and company filings to identify those businesses with an annual turnover greater than $100,000, and who had either not registered or been very late in doing so.

He added that a “level playing field” was vital, given 5,500 registrants (a number still increasing) had “complied with the law, gone through the process and are charging VAT”.

Yet 200 businesses, a number equivalent to just 3.6 per cent of total registrants, had not registered and were potentially selling their goods/services without charging 7.5 per cent VAT - thus giving them a competitive advantage.

But, while reiterating his support for the VAT Unit’s enforcement initiative, Mr Bowe said it was essential to identify true offenders.

“I’m aware of [sanctions] letters sent out earlier to business that did not have taxable suppliers, so they were not required to be registered,” Mr Bowe told Tribune Business.

“I’m hoping with the 200 letters that they’ve done their due diligence to ensure they are not holding companies or not providing taxable supplies.”

The Tax Coalition chairman said all parties knew “three key things” had to occur for VAT’s implementation to stand a chance of success.

These included clarity on the VAT Act, regulations and Rules, over which the private sector had “experienced some challenges that we’re working through”.

Another was government “tolerance in the transition”, given that the Bahamas was “moving from an unregulated environment to a more formal enforcement environment where every business pays due taxes”.

The final “critical” element, Mr Bowe said, was “compliance at a very high percentage”, with all registered businesses charging the correct sums, collecting due taxes and them remitting them to the Government.

“Compliance is going to be one of the most important elements as it relates to VAT’s success or failure,” he told Tribune Business.

While the VAT Unit has been checking whether Bahamian businesses are properly displaying their registration certificates, several private sector executives have told Tribune Business that problems persist in ensuring all records and paperwork are compliant.

Both Robert Myers, the Tax Coalition’s former co-chair, and Rick Lowe, Nassau Motor Company’s (NMC) operations manager/director, said they were dealing with invoices that consistently lacked either the counterparty’s Taxpayer Identification Number (TIN) or theirs.

The inclusion of these TINs is vital to establish the VAT ‘audit trail’ that the Ministry of Finance needs to ensure it receives the correct amount of tax.

The TIN invoice situation shows much more work is required to ensure all VAT registrants bring their recordkeeping into compliance.