The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Christie administration beat VAT collection estimates by 46 percent during the tax's first six months, raising further questions over how it could add $2.2bn to the national debt.

The Auditor General's report on the Government's 2014-2015 financial statements, tabled in the House of Assembly yesterday, disclosed that it beat VAT revenue projections by $68.68m after the tax was implemented during the second half of that fiscal year.

"In January 2015, the implementation of VAT transformed the Department of Inland Revenue (DIR) and, most importantly, the Commonwealth of The Bahamas as an agent of change in tax modernisation," the Auditor General said, extolling the virtues of tax reform.

"The VAT introduction was heralded nationally and internationally as a success. It is important to note that $218.68 million in revenue collected exceeded the Budget expectation of $150m. To reemphasise the success of VAT from January 2015 to June 2015, $218.68m was collected, which is $68.68m above the $150m forecast revenue and has a favourable revenue variance of 46 percent."

The Auditor General's report provides further evidence that VAT has to-date exceeded the Government's expectations as a revenue-raising mechanism, although many businesses and consumers may not necessarily hail it as a success given the impact on their finances and spending power.

Yet it also raises further questions as to the Christie administration's inability to use its VAT revenue windfall to narrow annual fiscal deficits that remained stubbornly above $300m, before - according to its successor - ballooning to over $670m in 2016-2017 due to a combination of pre-election spending and Hurricane Matthew.

Using the then-7.5 percent VAT rate, the Auditor General's report said the $218.68m tax take over that six-month period corresponded to some $3.134bn in economic activity.

"The amount is representative of dollars spent for the consumption of VAT-inclusive standard rate (7.5 percent) taxable supplies of goods and services that cost $2.916bm plus the VAT ($218.68m)," the report added.

"Whereas the Government incurred $1.778m recurrent VAT expenditure (input VAT) for consuming $25.491m of standard rate (7.5 percent) taxable supplies of goods and services domestically. Thus, with respect to government consumption, recurrent VAT expenditure of $1.778m in relation to the recurrent VAT revenue of $218.68m is 1 percent."

The Auditor General added that some $1.344m in VAT revenue remained outstanding as at June 30, 2015, consisting of taxpayers who had made full or partial payment with their filings; VAT assessed for non-filers; audit assessments; penalties and interest applied to arrears.

Elsewhere, the Auditor General acknowledged that real property tax remained the "most challenging of all tax types" for the Government to collect, despite its frequent offers of amnesties and surcharge waivers as an incentive for defaulters to come into compliance.

Noting that $527.409m in unpaid real property tax remained outstanding at the start of the 2014-2015 fiscal year, some of it dating back to 1993, the report said this increased by a further $110.718m over that period to close at $638.128m.

This was despite real property tax revenues increasing by $3.048m or 3 percent in 2014-2015 compared to the prior year's $103.955m. "The Office of the Auditor General recommended that additional measures be implemented to increase real property tax collection and reduce the exorbitant tax arrears," the report said.

"With respect to reducing the exorbitant tax arrears that date back as far as 1993, the Office of the Auditor General recommends a comprehensive review to determine uncollectible outstanding debt and removal of the obligation or claim to be written off."

It also complained that it had not been provided with information on the activities of there private debt collection agencies, hired by the Government to collect unpaid real property tax, in time for the audit review. As a result, it was unable to assess their performance.

As for Business Licence fees, the Government collected $125.846m in 2014-2015. This amounted to a $1.875m or 2 percent increase over 2013-2014, but was some $154,224 below the $126m forecast for the year.