The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government must display "the fortitude" to resist unwarranted lobbying by industries and special interests that further undermines the VAT base, a top accountant has warned.

Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that this was now "showing up" following the Minnis administration's decision to introduce multiple VAT exemptions and "zero ratings" in the 2018-2019 budget.

Mr Bowe, who headed the Chamber of Commerce's Coalition for Responsible Taxation (CRT) in the final talks with government prior to VAT's 2015 introduction, said such lobbying pressure was exactly what it had warned would happen should the original low-rate, broad based VAT - with minimal exemptions - be abandoned.

The latest budget represents a significant shift from The Bahamas' original VAT model, and the BICA chief said it was "too early to tell" how smooth the transition to a 12 percent rate and numerous exemptions has been because many of the latter do not take effect until August.

The VAT filings/payments for that month are not required until September, and Mr Bowe said: "That's where the measurement will come as it relates to how successful or smooth the transition has been in terms of the level of errors, mistakes or outright misrepresentations that the Department of Inland Revenue might find out of that."

He pointed to the "initial challenges being communicated" with respect to the Budget's VAT treatment changes, especially the 'exempt' status for real estate that has provoked an outcry from developers no longer able to 'net off' or reclaim the now-12 percent levy they must pay on their inputs.

K P Turnquest, Deputy Prime Minister, hinted to Tribune Business last week that the Government is likely to alter its stance on the issue to accommodate developers' concerns following advocacy from the newly-formed Bahamas Developers Association.

Mr Bowe, though, said there were concerns as to whether the resolution would be "confined to a narrow group of developers" or "broad based" and apply to all.

"Some of the challenges we warned of when we start to introduce zero ratings and exemptions are showing up in the heated confrontations you're seeing lately," he told Tribune Business, "whether that be the hotel sector and elements that impact bookings now; the construction industry talking about contracts in progress; the motor dealers with inventory sitting on shelves; and obviously the property developers.

"Government's decision in zero rating complicates the [VAT] administrative system, and leads to complexities as it relates to whether these decisions are best to enhance consumers or citizens, or are they listening to individual groups."

Mr Bowe called on the Government to show resolve, and "the fortitude to limit lobbying efforts" that have no merit, and warned it to "be very careful" when entertaining requests for VAT-related concessions and exemptions.

He added that it needed to distinguish between those that have merit and others which do not, otherwise it could undermine its VAT tax base and erode overall private sector confidence if it only listened to "better funded groups" that have more "savvy".

"We must be careful there is not a process within a process taking place," Mr Bowe explained, adding that the business community would also suffer "a loss of confidence" if the Government failed to deliver on any tax-related promises and commitments.

Mr Bowe is far from the first to express concern about potential erosion of the VAT base. Owen Arthur, former Barbados prime minister, during a visit to the Bahamas prior to the tax's original implementation described the willingness of that nation's government to grant industry requests for VAT exemptions as one of his biggest regrets.

He explained that this resulted in a much narrower tax base, with the burden shared by fewer economic sectors, resulting in a VAT rate that now stands at 17.5 percent.

The BICA president, meanwhile, called for a more rapid "roll-out" of the VAT guidance notes to enable the private sector to properly implement the new rate and associated requirements.

"The guidance notes are coming out slowly," he told Tribune Business. "There needs to be a more expedited roll-out of these guidance notes. They need to be read, understood and implemented, not a 'get them on Wednesday and implement by Friday'. If oftentimes comes down to whether guidance notes' treatment can be implemented in practice."

Mr Bowe said there were also still several taxation-related "technical issues" that required clarity, and dialogue between the Ministry of Finance and private sector to resolve.

Apart from the Business Licence 'double taxation' in the construction industry, where main contractors and sub-contractors were paying on the same turnover, Mr Bowe said the issue of VAT on common area maintenance (CAM) fees charged to members of a property owners' association also required resolution.

This, too, was causing "double counting" because such associations had already paid VAT on their light, water, security and other billings that underly the CAM charges. "It was agreed in principle that if property owners' associations were not charging a mark-up or any fee, and only cost, it [CAM charges] should not be subject to VAT," Mr Bowe added.

While anticipating a "knee jerk" reaction to the VAT increase from some consumers, the BICA president said it was "too early to tell" what impact the Budget's measures will have on consumption or if the Government will hits its target of $400 million in extra revenues - something it has still provided no empirical analysis for.

"Everyone is going to have to wait and see if the VAT changes have a significant dampening effect or less than significant dampening effect," Mr Bowe told Tribune Business.