The Tribune

By STACY JOHNSON

ACFE Bahamas Chapter president and director, Kikivarakis & Co

Value-Added Tax (VAT) is now here in the Bahamas following years of research, ‘White Papers’, discussions and debates. The Government expects it to produce a net revenue increase equivalent to roughly 2 per cent of GDP, and which will be used for projects that benefit persons living in the Bahamas.

For this outcome to materialise, the VAT Department must now give serious attention to ensuring that each business that has registered to collect VAT remains fully compliant with the law.

However, in a society where the cost of living is considered “too high”, the allure of avoiding, and/or evading, the collection and remittance of taxes to the Government will undoubtedly be on the minds of those charged with the responsibility of policing VAT.

The Bahamas Chapter of the Association of Certified Fraud Examiners (ACFE), thus reminds the VAT Department to be on the alert for common tax fraud schemes, including understated sales; inflated refund claims; fictitious and bogus vendors; fictitious invoices; taxes collected but not reported or remitted; false information on tax forms, including misclassification of taxable supplies; and understatement of purchases at the point of entry into the Bahamas.

Other fraud risks associated with VAT include missing trader fraud, where a business is created for the purpose of collecting VAT, only to intentionally disappear before remitting VAT to the Government. Then there are failed businesses, where a registrant discontinues its business for various reasons and does not remit VAT to the Government due to cash flow issues.

Section 62 of the VAT Act gives the Comptroller and his officers investigatory and enforcement powers, which authorise the VAT Department to conduct examinations of registrants. In this regard, the VAT Department is encouraged to consider certain tax fraud indicators such as:

Concealment of bank accounts

Inability to explain sources of bank deposits that substantially exceed reported income

A failure to deposit receipts in a business account that was set up primarily for deposits from sales

Cashing of cheques, representing income, at chequecashing services and banks where the registrant does not maintain an account

Mandatory registrants who fail to register

Maintaining multiple sets of books, and holding inadequate records

Concealment of records

Attempting to hinder or obstruct an examination

The VAT Department employees charged with the daunting task of examining and monitoring registrants must sharpen their fraud detection skills in order to identify the tricks and schemes perpetrated by tax evaders, and persons seeking to benefit illegally from VAT taxes.

These examiners must also be able to distinguish between fraudulent intent and genuine reporting errors, so that registrants do not become frustrated by the examination process. They must be skillful in their dealings with registrants to the extent that there is a clear distinction between providing needed assistance to help registrants transition smoothly into this new process, versus compromising their professional scepticism during the conduct of an examination.

VAT implementation has also prompted the Government to reassess whether the current level of funding for its social services programmes is sufficient to mitigate the tax’s impact. Based on its assessment, the Government has approved a 5 per cent increase in the food assistance budget at the Department of Social Services.

But fraud perpetrated in social services programmess is quite common worldwide, resulting in millions of dollars being lost by governments. It should be carefully monitored to reduce the risk of waste and abuse. A functioning system of internal controls, consistent monitoring of the process, and training of staff and businesses involved in the food assistance programme is critical in order to identify and reduce fraud.

If the collection and remittance of VAT is not consistently and properly monitored, tax fraud can have a significant impact on the revenue that should be collected. Recoveries and fines are only a small percentage of the billions of dollars that are defrauded from governments around the world.

In short, tax fraud will affect every taxpayer and is a ‘big deal’. The real “cost” of VAT fraud will be borne by the consumers, who are concerned that collectability will continue to be an issue for the Government. Consumers will insist on enforcement and accountability, and so it is important that the VAT Department gains the respect and trust of businesses and consumers early in this process. This can be accomplished if the VAT Department, with the support of the Government, equip themselves with the necessary resources and training, and demonstrate to registrants and consumers that they are resolute and consistent with compliance and policing initiatives in the months and years to come.

• NB: The Bahamas ACFE Chapter was founded in 2010. The ACFE is the world’s largest anti-fraud organisation and premier provider of anti-fraud training and education.

Together with nearly 70,000 members in more than 150 countries, the ACFE is reducing the incidence of fraud and providing the training and resources to fight fraud more effectively. For more information about the ACFE, visit www.acfe.com. Our international motto is “Together, reducing fraud worldwide.”