The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

THE government's $360 million in unfunded arrears is "entirely connected" to inadequate accounting systems and financial management processes, the deputy prime minister has revealed.

K Peter Turnquest, pictured, told the Institute of Chartered Accountants of the Caribbean (ICAC) conference that the current cash-based accounting system was "simply a handicap" in determining the government's true financial position, ahead of the move to an accrual basis by 2022.

"The fact that this could even happen is entirely connected to the inadequacy of our current accounting systems and financial management processes," Mr Turnquest said of the $360m in unfunded arrears that helped to drive the VAT rate hike.

"Operating a cash-based accounting system is simply a handicap; it introduces the risk of negligence into proper record keeping, poor monitoring of budget implementation and misappropriation of funds. It cannot provide the analytical information needed to effectively manage public finances, rendering the government incapable of knowing what is in the pipeline, including what it owes and when the bills are due."

Mr Turnquest added that only a manual review of individual invoices across disconnected government departments and ministries can currently give such insights. "There is currently no financial account that keeps record of arrears, or capital assets, and all manner of other vital financial data," he added.

"Governments simply must have reliable information about their liabilities and expenses, as well as projected income flows, in order to properly understand their financial position and make sound fact-based decisions.

"It is a matter of integrity, which has implications even outside of our borders. There tends to be scepticism around the government's finances because of the limitations of our accounting systems; these weaknesses are well known internally and by international monitoring agencies."

The Ministry of Finance is currently recruiting 30 accountants, 15 of whom will support the government's needs as it transitions to accrual accounting and undergoes public financial management reform. The other 15 will be trained specifically to join the VAT audit team.

Mr Turnquest said value-added tax (VAT) now accounts for 40 percent of government revenue, while trade taxes contribute 24 percent. Prior to the introduction of VAT, trade taxes accounted for well over 50 percent of revenue.

"For a long time, The Bahamas was able to coast along with a tax structure that essentially hid the taxes from consumers," he added. "When you buy anything in The Bahamas, that item might have a 45 percent or 65 percent customs duty hidden in the cost of goods sold.

"We all know it is there, but it feels benign as this form of indirect tax is not disclosed at the point of purchase like value-added tax; it does not come off your pay check like an income tax, and it does not skim off your profits like a corporate tax.

"Governments, in the past, could raise duties as much as they felt like, with minimum protest and complaint because those taxes do not show up on bills. They are hidden. We only feel them in an abstract way, knowing that the relative cost of living in The Bahamas is high," continued Mr Turnquest.

"The old structure that was reliant on trade taxes was also responsible for Bahamians being so resistant to the idea of direct taxation. As a culture we are not used to this form of tax, and our companies are not used to the financial scrutiny and discipline that is demanded by a more robust tax system."