The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian retailers were unable to buy their preferred Christmas inventory due to Value-Added Tax (VAT) refund delays, with the issue threatening to undermine private sector “trust in the integrity” of the new regime.

Edison Sumner, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chief executive, confirmed that the organisation met with senior Ministry of Finance officials to address the ‘refund’ issue after numerous companies raised concerns.

He disclosed that “petitions” from companies awaiting refunds were presented to then-financial secretary and VAT comptroller, John Rolle, and now-acting financial secretary, Simon Wilson.

The Ministry of Finance officials admitted that some VAT registrants had not received “timely” refunds, while others had “outstanding issues” they needed to resolve in terms of filings and paperwork. Some refunds were also being applied as tax credits.

While visits by VAT inspectors were required, in some cases, to sort out the problems, Mr Sumner told Tribune Business that refund delays had negatively impacted companies’ operating capital and cash flow.

This, he confirmed, had resulted in several retailers being unable to purchase their desired inventory in the run-up to the key Christmas season, due to cash being tied up in VAT ‘refunds’.

Mr Sumner said the issue had not been raised again with the Chamber since the New Year, and following the December meeting with Messrs Rolle and Wilson.

However, Tribune Business has spoken to several merchants who are still awaiting their VAT refunds. One suggested that a rebellion was brewing among the retail and wholesale community, with talk of either not paying the VAT collected on the Government’s behalf to it, or using this money to offset what was owed.

A well-known retailer, speaking on condition of anonymity, told this newspaper that matters had yet to reach that stage.

However, confirming that their company was awaiting a significant VAT refund, the source said: “I know lots and lots of people waiting for VAT refunds. Maybe that’s why they’re collecting so much money; because they are not paying refunds.”

The source added that it was not just retailers and wholesalers awaiting delayed refunds, but the likes of construction companies and other industries, too.

Mr Sumner acknowledged that the ‘refund’ issue threatened to undermine private sector trust in the VAT system, plus the close working relationship developed between the Government and the private sector over the new tax.

“The concern, and this is one of the critical issues that are still on the list for discussion with the Government, is that there were assurances given in the lead-up to VAT implementation that refunds would not be an issue,” Mr Sumner told Tribune Business.

“The Government had made a commitment that once the business community filed VAT returns, they would be paid due refunds on time.”

“The challenge we’re having now,” he added, “and this goes for small, medium and large businesses, is that in the run-up to November/December, they were not receiving their tax credits on a timely basis.

“It brings the Government’s integrity into question, as they’re not doing what they said would be done.”

Mr Sumner said that particular issue was also addressed with Messrs Rolle and Wilson, as it “could turn into a major concern for the private sector”.

“We raised the integrity of the process with the Government, and its promise and commitment to hold to refunds and credits being paid on a regular basis,” he told Tribune Business.

“The businesses that are owed VAT refunds, this money is tying up operating capital. They’ve already paid VAT to the Government, and because they’re not receiving refunds and getting money back into their accounts, that is impacting their cash flow.

“One of the major complaints coming from retailers was, coming into the holidays, it was impacting their ability to purchase the kind of inventory they wanted for Christmas, as the Government was delaying their refunds.”

Mr Sumner confirmed that the issue still concerned the Chamber, especially since the private sector had fulfilled its ‘side of the bargain’ by fully complying with VAT’s requirements.

“We in the private sector have complied with all the rules and regulations, and are very efficiently and promptly turning this tax over to the Government every period,” the Chamber chief executive said.

“The Government is benefiting from the hard work of the private sector. They’re collecting surpluses, and all we’re asking for is fulfillment of the promises made when it comes time to refund tax credits that it be done.

“At least get to the point where businesses can repose some trust in this process by having Government make the payments as promised.”

Mr Rolle, before his appointment as Central Bank governor, acknowledged to Tribune Business last year that it was vital the 6,000-plus VAT registrants enjoy a positive experience when filing for, and claiming, their VAT ‘refunds’.

Despite a “fairly smooth roll-out” from the Government’s perspective, the then-VAT Comptroller agreed that Bahamian businesses needed to a trouble-free ‘full cycle’ if they were to fully trust the new regime.

And Mr Rolle said that the Government meeting its pledge to provide VAT refunds within one month of a claim being submitted was even more important to the private sector than a smooth filing and payment process.

“For us, it’s going to be very important that the refund mechanism lives up to what has been promised, and businesses continue to file and interact in terms of accounts and filing, and the convenience the system is supposed to offer is there,” Mr Rolle said then.

In effect, his comments foresaw some of the problems that the private sector is complaining of now.

Timely refunds, which will be paid when a company’s ‘input’ VAT payments exceed its ‘output’ tax payments, are vital to business cash flows.

Consistent refunds will likely only be incurred by Bahamas-based exporters, whose products are zero-rated for VAT purposes. If other registrants end up in this position, it may suggest that the company is incurring persistent losses and could soon go out of business.

However, the seasonal nature of tourism and retailing, for example, means that the likes of hotels and merchants rely on peak times - Christmas, Easter and ‘Back to School’ - to generate the bulk of their profits, which carry them through the rest of the year.

Such businesses may apply for periodic VAT refunds, and providing them on a timely basis is key to a cash-strapped government fostering private sector confidence that it can hold up its side of fiscal reform.

Barbados, a Caribbean country in an even worse fiscal position than the Bahamas, is an example of what happens when the VAT refund process goes awry, with businesses having to wait months - and sometimes years - for due compensation.

Mr Sumner told Tribune Business that the Government and private sector had worked “too hard” together over VAT to let the ‘refund’ issue drive a wedge between them now.

Describing the two sides as having “a solid relationship”, he added: “We want it to remain that way, but when business people are shouting they are paying taxes but are not getting refunds due to them, that is not a balanced relationship.

“We’ve worked too hard, and put too much effort, into making sure there is this balanced relationship, and this opens the door to an imbalanced relationship.

“It’s time for the Government to honour its commitments to the private sector and do what it said it was going to do.”

Mr Sumner, though, urged VAT registrants to make sure all filings and relevant documents were completed properly, otherwise they would encounter “frustration” in obtaining timely refunds.

“It’s my understanding from some of those who did approach us [over delayed refunds] that they had some outstanding issues they needed to clear up with respect to the finalising of VAT paperwork,” he added. “VAT inspectors had to call on them to sort out the issues.”

Mr Sumner called on businesses still experiencing VAT ‘refund’ woes to report their cases to the Chamber, which would take up the matter on their behalf.