The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The one-month Business Licence filing period is designed to boost compliance rates that have fallen as low as 40 per cent, a Cabinet Minister said yesterday, while promising that the Government will not employe “a sledgehammer” approach.

Michael Halkitis, minister of state for finance, told Tribune Business that the Christie administration was receptive to private sector concerns over the recent Business Licence changes, and willing to “tweak” the process if necessary.

He emphasised that the Government was seeking to “strike that balance” between Business Licence fee compliance and not over-burdening the private sector with bureaucracy and costs.

Mr Halkitis added that should the Government achieve the tax compliance levels it desires across all revenue streams, this would open up opportunities for tax rate cuts - as occurred with the top Business Licence fee rate in the 2015-2016 Budget.

The Minister, speaking earlier at a Chartered Financial Analyst (CFA) Society of the Bahamas luncheon, said the Government had been advised that it could see a 10-15 per cent improvement in revenues from better administration of the existing tax base.

Focusing on Business Licence fees, Mr Halkitis said the reforms implemented in this year’s Budget were designed to boost revenues and compliance levels, feeding off processes similar to those employed by Value-Added Tax (VAT).

“Our advice is that in past years, Business Licence compliance has been as low as 40 per cent, so we’re doing some things now - not by using a sledgehammer - but are doing things now so we can do better,” Mr Halkitis said.

This, he explained, involved a reduction in the turnover threshold, above which companies must have their turnover certified by a licensed accountant, from $1 million to $100,000.

And Bahamian businesses now have just one month following the calendar year end to file their Business Licence returns with the Department of Inland Revenue. This deadline has thus been brought forward by two months, although companies still have until end-March to pay their fees.

The reforms have generated significant concern from the private sector, led by the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), and now also the Bahamas Institute of Chartered Accountants (BICA).

Tribune Business reported last week that the Chamber wants the certification threshold raised from $100,000 to $400,000, and preferably back to $1 million.

It is also urging the Government to waive the $100 penalty associated with missing the end-January deadline, with filing pushed back to the same March 31 payment date.

This newspaper previously reported how the certification costs would at least match - and potentially even double - what businesses with annual turnovers close to the $100,000 threshold pay to the Government in Business Licence fees, especially if they do not have an organised accounting system.

The Chamber also fears compliance with the January 31 deadline will prove an “onerous task” for already cash-strapped small and medium-sized enterprises.

It has now been backed by BICA, which has described the end-January date as “impractical” because it will not allow companies enough time to get their financial records in order, and for their accountant members to complete an accurate verification.

Addressing these concerns in an interview with Tribune Business, Mr Halkitis explained that the $100,000 certification threshold was selected because it harmonised the Business Licence regime with the Value-Added Tax (VAT) registration benchmark.

“A part of our move to put it to January 31 was because, in the past, we’ve had difficulty with people filing on time,” the Minister explained of the tighter reporting deadline.

He said the Government’s thinking was that a January 31 deadline would give it time to examine the filings for any mistakes, deficiencies or queries prior to receiving Business Licence fee payments, while it would know the likely revenues to be received earlier.

“It’s all part of our efforts to increase compliance,” Mr Halkitis told Tribune Business, adding that the Government was willing to compromise with the private sector if the process proved too onerous.

Confirming that the Chamber had written to the Government laying out its concerns, Mr Halkitis said the administration was assessing the issues raised.

“We don’t want to put an extra burden on anybody, but we’re trying to hit the kind of compliance we’re looking for,” he explained.

“The deadline is upcoming, and we don’t want to come out with sledgehammer on anyone. If the deadline is impossible, we’ll tweak it. If we find that’s something we need to do, we’ll be prepared to do that.

“We’re listening to what they say, looking at it and are willing to work with them [the private sector].”

Mr Halkitis reiterated: “I don’t think anyone needs to fear that we’ll come down with a sledgehammer on them. We’re trying to increase compliance, and if we can get compliance up, we can look at reducing the rates.

“We want to strike that balance between compliance and not over-burdening people with paperwork.”

The Government’s 2013 ‘White Paper’ on tax reform, which laid out the VAT proposal, suggested that Business Licence fees would ultimately be reduced to a flat $100 across the board following implementation of the new tax.

Many have queried why the Government has yet to move on this commitment, but Mr Halkitis yesterday explained that VAT’s nature had changed markedly from the 15 per cent rate contained in the ‘White Paper’.

He said that document had anticipated broader, and deeper, Customs duty rate cuts as a result of a higher VAT rate. The Government ultimately settled for 7.5 per cent, and Mr Halkitis said this also meant the Government was unable to reduce other taxes as much as initially indicated, such as Business Licence fees.

The Business Licence fee has long been a controversial tax for the private sector, as it is based on top-line turnover, not profits. It benefits low turnover, high profit margin companies, while penalising high turnover, low margin businesses such as food stores and gas stations.

And, in many cases, what companies pay in Business Licence fees to the Government often exceeds their annual profits.