The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government’s financial watchdog has urged the Department of Inland Revenue (DIR) to be more aggressive in probing discrepancies of up to $68m between a company’s VAT and business licence fee turnover.

The auditor-general’s report for the 2016-2017 fiscal year, tabled in Parliament this week, called on the government’s main revenue collecting agency to “follow up and investigate” more rapidly when glaring anomalies were exposed in tax returns and filings.

Although the annual turnover (sales) reported by a company for VAT and business licence purposes should be the same, the report revealed that one major Bahamian corporate group - identified only as “taxpayer D” - submitted filings showing a $68.06m difference between the two.

While its business licence filing reported annual turnover of $188.767m, its separate VAT filings pegged this at just $120.707m. The difference was unexplained in the report, with the auditor general calling for the Department of Inland Revenue’s enforcement unit to undertake a “field audit” of “taxpayer D”.

Finding that the turnover “variances” had resulted in a large Bahamas-based conglomerate “under-reporting” the VAT it should have paid by $5.1m, the auditor-general’s report also noted that “taxpayer D’s” business licence filing was not accompanied by the required accountant’s letter certifying that the reported $188.767m turnover was correct.

“The additional revenue turnover as filed for the business licence should have been reported on the VAT filing returns and paid to the consolidated fund,” the report said. “The amount of $68.06m variance for “taxpayer D” requires a field audit by the Audit and Enforcement Unit.

“The $188.767m business licence turnover filed by ‘Taxpayer D’ for its grouped entities’ licence renewal and associated fees were settled with VAT credit transfers totalling $2.675m. Refund request cases were not filed for the credits by the taxpayer for the actual claimable amount to be verified for approval under the General Processing Unit.”

As a result, the auditor-general’s report found that “transferring the VAT credits to apply against the business licence fees for the $188.767m business licence turnover” did not follow the established process for reporting this to the consolidated fund.

Matching turnover figures submitted by the same company for its VAT returns and annual Business Licence filing is one of the first, and easiest, cross-checks that can be applied by the Department of Inland Revenue to determine whether a corporate taxpayer is under-reporting or evading a particular tax.

However, “Taxpayer D” was not a single isolated incident. Turning to another unnamed company, “Taxpayer G”, the auditor general’s report this time found that the $63.377m turnover reported was the same for both its Business Licence and VAT filings.

Yet the letter certifying its turnover for Business Licence fee purposes, which was signed by a Bahamas Institute of Chartered Accountants (BICA) licensed accountant, pegged “Taxpayer G’s” turnover at just $20.698m - a whopping $42.679m difference.

“There was no correspondence indication on file that a follow-up was made to have the case revisited for a corrected letter to be provided,” the auditor general’s report said of its Department of Inland Revenue inspection.

“We recommend that the BICA certified accountant’s letter be obtained and affixed on file for all Business Licence renewal approvals for turnover of $100,000 or above. In cases where a notable variance exists between the filed turnovers, follow-up and investigate the difference to have the case revisited for completeness.

“Going forward, the Business Licence and VAT turnover comparative analysis annual report should be reviewed and any differences investigated for potential revenue recovery.” Companies with annual turnover of $100,000 or above are required to have this certified by an external accountant for Business Licence purposes, but the auditor general’s office found this was not always being enforced.

“Review of Business Licence renewals disclosed that this requirement was not always followed by the Department of Inland Revenue as there were cases where approvals were made - and licences issued - without obtaining this relevant documentation,” the report said. It added that this breached the Business Licence regulations No.5, which was changed in 2015.

It is unclear whether the Department of Inland Revenue has addressed the weaknesses identified in this report, but they are especially alarming against the backdrop of the $1.3bn fiscal deficit the Government is projecting to incur for its upcoming 2020-2021 fiscal year.

Both K Peter Turnquest, deputy prime minister, and Marlon Johnson, the Ministry of Finance’s acting financial secretary, in their post-Budget press conference yesterday said that cracking down on tax cheats - and ensuring the Government obtains every cent of revenue due to it - remains one area where the Public Treasury’s income might improve amid the COVID-19 pandemic’s fall-out.

The auditor general’s 2016-2017 findings, which cover the last year of the former Christie administration, raise questions about the Department of Inland Revenue’s ability to achieve this goal if the systems and procedural deficiencies have not been addressed.

For the financial watchdog’s report identified another VAT registrant who had under-reported due VAT by $230,966. “For 2016 Business Licence renewal, $2.119m gross revenue was reported by no VAT turnover was filed for the related period. This difference attracted $158,949 VAT,” the auditor general’s office found.

“We further noted that the taxpayer had been registered for VAT from December 8, 2014, in time to charge and collect VAT as of January 1, 2015. For 2017 Business Licence renewal, $1.929m gross revenue was reported and $968,482 for the VAT turnover, resulting in a difference of $960,221. This difference attracted $72,017 in VAT.

“We recommend that the assessed VAT of $230,966 be applied to the taxpayer’s account for revenue recovery.”

And, elsewhere, the auditor general’s office found the Department of Inland Revenue was failing to follow both the law and government policy by waiving and writing-off interest and penalties for VAT late payments as well as outstanding Business Licence fees.

A sample of six VAT delinquents, owing a combined $466,337, found that the agency had waived a collective $156,196 in interest and penalties owed by these businesses even though the VAT Act specifically forbids doing this.

“The impact of waiving interest and penalties that are deemed inappropriate results in revenue foregone,” the auditor general’s office said, “and, over time, the amount escalates and the Government’s tax agenda is at risk. We recommend that the total outstanding VAT liability of interest and penalties waived, $156,196, be reinstated to the taxpayers’ accounts for recovery and deposited to the Consolidated Fund.”

It was a similar story with Business Licence fees where five companies saw a combined $6,055, out of a total $6,775 owing, written off despite the Department of Inland Revenue having no lawful powers to do this.

“Some taxpayers received write-off of back years’ taxes and late filing and payment penalty fees, contrary to policy,” the auditor general’s office found. “We recommend that all businesses that received unjustified write-offs be made to pay those waived taxes in full.

‘‘Accordingly, the accounts be updated to reinstate the appropriate Business Licence fees and penalties. Further, all outstanding VAT and Business Licence revenue inclusive of interest and penalties be recovered and the taxpayer rightfully fined in accordance with VAT Act section 40 (4).”