The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Six companies reported "significantly understated turnover" worth a collective $18.674m on their business licence renewals during the 2017-2018 fiscal year, it was revealed yesterday.

The Auditor General's Office, in its review of the Government's accounts for the Minnis administration's first year in office, found that this under-reporting compared to the turnover these companies disclosed in their annual VAT filings for the same period resulted in a collective $227,685 "shortage" on the business licence fees due for payment.

While the Government's financial watchdog did not name any of the companies involved, only referring to them by the letters 'A to F', it said: "Examination of a sample of business licences processed for 2018 renewal disclosed significant understated turnover values."

The discrepancies included one of $10.816m for a company whose VAT filings showed top-line revenues at $130.214m, yet its business licence renewal application pegged turnover at just $119.397m. This enabled it to cut its business licence fee payment by $135,205.

Another firm, referred to as 'taxpayer B', was shown to have an annual turnover of $26.682m based on its VAT filings. Yet its business licence renewal showed this as just $19.682m, a difference of $6.665m, enabling it to avoid paying $83,309 on its business licence fee.

"In addition to the above, a taxpayer whose total turnover for 2017-2018 was $17.097m, and should have paid a standard business licence fee of $213,715, actually paid a total of $64,783m, resulting in a shortage of $148,932," the Auditor General's Office said in its audit.

"We recommend that controls strengthen to improve the efficiency of the Business Licence Unit. The use of data analytical and continuous integrated systems audit reviews be advanced to detect and action exceptions in a timely manner. In addition the shortage should be collected."

The Auditor General's Office has repeatedly urged the Department of Inland Revenue (DIR) to be more aggressive in probing discrepancies between a company’s VAT and business licence fee turnover, using the two separate filings as a cross-reference to detect bill duckers and tax avoiders/evaders as the two should theoretically be the same.

Some accountants have argued that this is not necessarily the case, due to the array of VAT exemptions and zero ratings that exist, but the Auditor General's Office also pointed to gaps and weaknesses in business licence administration.

"Review of a sample of (22) taxpayers' accounts disclosed tax arrears for VAT and business fees, at the end of the fiscal year at June 30, 2018, as totalling over $2.11m," the report said. "The $2.11m is an accumulation of the taxpayers' non-compliance with legislation in paying VAT as due and the annual business licence fee. We recommend that the enforcement and compliance tools as legislated be reinforced in collecting tax revenue.

"All businesses in operation are mandated by law to have an active business licence and comply with the regulated annual renewal process. We noted a number of multi-million dollar businesses that are operating without renewed business licences. Some of the businesses have been operating for years without having a licence."

The Auditor General's Office said "in some cases" the business licence renewal process had started but not been completed, yet it did not name any of the companies allegedly involved in the report.

However, it identified 16 companies - also unnamed - with annual turnovers ranging up to $15.393m where the accountant's letter verifying the top-line sum was missing from the Department of Inland Revenue's file.

The Auditor General's Office also revealed that the Department of Inland Revenue was breaching the law by waiving interest and penalties on unpaid or late VAT, even though this is forbidden by section 60 (7) specifically forbids this.

"Waiving interest and penalties resulted in revenue leakage," its audit said. "In the sample of cases examined the amount waived totalled $92,240. This is an indication of system override and weakness in internal controls."

Attention was also drawn to two transactions processed by the Ministry of Finance's Revenue Enhancement Unit (REU), with the Auditor General's Office finding: "An assessment conducted on a taxpayer's account was $348,465, which was later reversed to $275,350, resulting in a reduction of $167,954 in tax liability.

"Another assessment performed resulted in $246,510, and was later reversed to $165,613, resulting in a $80,897 reduction in tax liability. We noted that there was no documentation on file to justify the reversals. We recommended that the assessed amounts of $348,465 and $246,510 be reviewed."

Some $41.1m in due VAT was shown to be outstanding at end-June 2018, having accumulated over the tax's first four years. Some $19.97m of this figure, or 49 percent, stemmed from VAT audit assessments while another $13.29m, or 32 percent, related to filing returns.