The Tribune

• Average decline said to be between 40-50%

• Accountants: ‘Expected. but amazing to see’

• Business licence filings expose pandemic toll

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Corporate Bahamas saw the COVID-19 pandemic slash its 2020 revenues by up to 70 percent, with business licence filings placing the average fall-off between 40 to 50 percent.

Accountants, who are responsible for certifying the accuracy of turnover figures reported to the Department of Inland Revenue (DIR) for business licence purposes, told Tribune Business it was “one thing to expect, but amazing to see” the pandemic’s impact on their clients’ top-lines compared to pre-COVID-19 years.

They explained that the severity depended on the particular business, the industry it was in, and how hard they were impacted by lockdowns and other government-imposed restrictions. Hotels and tourism-related businesses; retailers deemed “non-essential” for COVID-19 purposes; downtown Nassau businesses reliant on the cruise industry; and those linked to the airport were especially hard-hit.

While companies have been making “every effort” to meet the just-passed January 31 filing deadline, accountants warned “the real test” will come at end-March when the actual payment of business licence fees becomes due because many firms are suffering from severe liquidity and cash flow woes that may leave them with inadequate funds.

Craig A “Tony” Gomez, the Baker Tilly Gomez accountant and partner, told this newspaper: “If we were to judge by what happened in the country in 2020, many of the companies that are filing are reporting their income is down significantly, especially if they were in any kind of retail business.

“Those in the restaurant business suffered severely, which was expected because of the lockdowns and curfews etc... Anybody related to Lynden Pindling International Airport (LPIA) will see a significant downturn because the airport was shut. There’s a downturn in revenue across all the entities, particularly anyone related to the airport, downtown Nassau, retail and tourism.

“It’s what we expected. This is one time where we’re seeing what we expected manifest itself in the Business Licence figures. It’s never good to see this, but it’s real. It’s one thing to expect it, but amazing to see it. I feel that it’s in the range we expected to see, but to see it manifest itself brings to the fore the impact of the pandemic.”

Entertainment businesses such as bars, nightclubs and cinemas, which have now been closed for more than ten months under the government’s COVID-19 emergency powers, will also be among the sectors reporting the sharpest turnover declines for business licence purposes.

Those likely to report the least fall-off, and perhaps even increased top-lines, will be “essential” businesses such as food store chains and others allowed to continue operating throughout the pandemic. And Mr Gomez said there even some industries who had “surprised” by their resilience, and the way in which their top-line revenues held up.

“We are seeing, surprisingly, that real estate companies, rental operators and commercial property firms still very much held their own,” he said, revealing that some clients in this space suffered just a 9 percent revenue fall compared to pre-COVID. “They remained fairly even; they remained flat and consistent in their revenue. Not all, but many of them. A couple of real estate properties maintained their income levels.”

The situation implies a significant fall-off for a revenue stream the Government has come to rely on heavily for nine-figure income annually, notwithstanding the private sector’s complaints that it is a distortionary tax that penalises high turnover, low margin businesses such as food stores and gas stations while favouring low revenue, high margin rivals.

Business Licence fees generated $135.741m for the Public Treasury in the 2018-2019 fiscal year, which was the last period not to be impacted by the pandemic. They dropped by an estimated 19 percent year-over-year to $110.053m, a fall of more than $25m, in the 2019-2020 fiscal year, as COVID-19 struck right at the point when Business Licence fees were due to be paid.

Some of the drop-off may also have been due to the Government’s tax credit and deferral initiative, which allowed firms to defer 50 percent of their VAT and Business Licence liabilities and enjoy a write-off on the balance in return for keeping up to 80 percent of their staff employed at the peak of COVID-19 lockdown.

For this fiscal year, the Ministry of Finance is forecasting an even steeper year-over-year decline of more than 30 percent to $77.2m, a figure than is also 43.2 percent down on 2018-2019. Based on what Bahamian accountants are seeing, it is right to have taken such a cautious approach that still might under-estimate the extent of the decline.

“Top lines are down as much as 48 percent on the high-end, and 9 percent on the low end,” Mr Gomez said. “The decrease in government revenues will fall somewhere between the two. It will certainly impact government revenues. And when you have had restrictions for nine months it could be anything for certain industries.

“I’d expect it to be 60 percent; as much as 70 percent for some. If your busy season is January to March, the first three months of the year, the decrease would not be as significant as someone whose business is predominantly in June to September. It depends on the business model.”

Ricky Chea, a former Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that his clients’ 2020 turnover was on average down by 40 percent compared to the pre-COVID 2019.

“They’re doing about 60 percent of what they’d done in the prior year,” he added. “If I were to give you a general number it would be in the ball park of what it was last year.” Mr Chea added that the Department of Inland Revenue also seemed to be taking longer to respond to his clients on the sum they needed to pay, once the filing and certification letter was submitted.

Whereas it previously took three to four days, it was now taking ten days to two weeks, which could be a function of the Department having to cope with VAT and substance reporting filings at the same time.

“I understand the COVID-19 environment, but given that the Government needs money, I thought in this area they’d be more aggressive to get it out so people can pay,” Mr Chea said. “I guess many businesses will not be too aggressive to pay. It’s a cash flow issue for everybody.”

Mr Gomez concurred, saying: “We are seeing every effort being made by companies to file. It’s not all on time, purely because of the closure of some businesses and interrupting of reporting cycles.

“The real test will be the payment deadline, because not all are liquid. Businesses will acknowledge their liabilities but can they make the payment is the big question. March 31 will be the real test. There’s no doubt companies are acknowledging their tax liabilities, but because of the reduction in business in 2020, which resulted in reduced cash flow, it will be interesting to see what impact that has on payment.”

Kendrick Christie, the Crowe Bahamas accountant and partner, told Tribune Business that while there had been “some bright spots” many companies suffered revenue fall-offs of “at least 50 percent”. In some cases, this reached as high as 70 percent.

Marlon Johnson, the Ministry of Finance’s acting financial secretary, confirmed that the Government was bracing for an expected decline in Business Licence revenue but did not comment further.