The Tribune

• Top finance official confident on agreement this week

• ‘Built-in flexibility’ with audit deadline extend up to June

• Companies fear new stipulation cost like ‘a hidden tax’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official last night voiced optimism that “a happy medium” is close over new Business Licence verification rules that were causing growing private sector anxiety.

Simon Wilson, the financial secretary, told Tribune Business he is hopeful that the Government, accounting industry and private sector can this week finalise and publish an agreed framework that has “built-in flexibility” over the deadlines by when companies with annual turnover exceeding $5m must submit their audited financial statements.

While many in the accounting and private sectors view the demand for audited financial statements as too onerous and unnecessary, given that only top-line turnover needs to be verified as this is what the annual Business Licence fee is based on, Mr Wilson explained that the Ministry of Finance has a broader objective.

Rather than a narrow focus on Business Licence fee certification and collection, he told this newspaper that the exercise is a wider “revenue intelligence tool” designed to ensure “integrity across all tax types” and said the tax authorities “see no reason why there won’t be a high level of compliance from year one”.

Pointing to the better-defined guidelines in the new Business Licence Act, which set out what is expected of auditors/accountants in verifying a company’s annual turnover, Mr Wilson said the Government had previously discovered some “did not do the basics” in checking the accuracy of disclosures by corporate clients subsequently found to have under-reported revenues to avoid paying the full tax liability.

Annual Business Licence filings are due by end-January 2024, with the fee payment deadline at end-March, and there were rising fears that many companies above the $5m annual turnover threshold would be unable to produce the required audited financial statements by that date.

These concerns were rooted in the ability of some companies, who may never have been required to produce audited financials before, to provide all the necessary financial records in time and/or access the necessary resources. And, on the accounting side, there were doubts over whether The Bahamas as a sufficiently large pool of auditors to perform all the work in time.

Mr Wilson last night confirmed that the proposed agreement focused on end-April 2024 as the deadline for $5m-plus businesses to provide audited financials. Those unable to meet that timeline, and who have valid and good reasons for not doing so, will get an extension to end-June 2024 once they apply. Those going beyond June, he added, could be deemed non-compliant and subject to financial penalties.

“We have worked with the Bahamas Institute of Chartered Accountants (BICA),” the financial secretary told Tribune Business. “We think we have a framework which is agreed with everybody. We have built-in extensions for flexibility up until April. It’s April for everybody, and then June.

“After June, there’s another regime that takes place for those businesses that are non-compliant. That regime, in essence, will involve potential monetary penalties for non-compliance and some other things.” To ease the strain on businesses, Mr Wilson said companies will be able to calculate their Business Licence fee based on their own financial year-end, rather than the calendar or government’s fiscal year-end.

And he added that, based on the Government’s own records, there are only about 25-30 standalone companies that fall into the $5m-plus annual turnover bracket. All others are part of larger corporate groups, either the parent or its subsidiaries, and can be addressed as one with costs spread over and shared between these entities.

As for suggestions that the so-called “new business rules”, unveiled by Prime Minister Philip Davis KC during the 2023-2024 Budget debate, are overkill, Mr Wilson pushed back by saying: “I think we were quite clear to them. The audit is a tool for revenue intelligence. It’s not just a tool for Business Licence fees. The reason we have the audit is to ensure integrity across all tax types, not focused solely on Business Licence.”

Voicing optimism that the Government and private sector are close to an agreement, Mr Wilson added: “I’m thinking that this week it will be published. I think BICA submitted some last second comments on Friday. By this week everything should be agreed. We believe we have the happy medium. We don’t see any reason why there won’t be a high level of compliance from year one.”

The new Business Licence Act contains a “much more robust reporting framework” with penalties for auditors who sign-off on inaccurate filings, and guidelines that set out what is expected from them. “Sometimes auditors are at the whim of the client,” the financial secretary added. “They rely on the client to provide full and frank disclosures.

“In some cases we have found auditors did not do the basic requirements to ensure disclosures were accurate.” Mr Davis, back in June 2023, said the Government through the enhanced Business Licence reporting regime was “encouraging better record-keeping within businesses and encouraging proprietors to be responsible for honest reporting”.

But micro, small and medium-sized enterprises (MSMEs) with annual turnovers below $250,000 will be exempt from having to maintain electronic records and have an independent accountant certify their turnover for Business Licence renewals. This threshold was raised from $100,000 to ease the burden on more such firms, who will submit management accounts as verification of their turnover sums.

However:

• Businesses with annual revenue between $250,000 and $499,000 will require accounting certification by an independent accountant

• Businesses with turnover between $500,000 and $2.499m will require a compilation report by an independent accountant

• Businesses with revenue between $2.5m and $4.999m will require a review statement by an independent accountant

• And large taxpayers, namely businesses with turnover above $5m, will require audited financial statements produced by an independent accountant

Gowon Bowe, a past BICA president, yesterday confirmed to Tribune Business that BICA’s technical committee as well as the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) have been in talks with the Government over implementation of these rules.

While nothing has been “formally communicated” yet, he added that the Department of Inland Revenue (DIR) signalled during the recent Accountants Week seminars that “because this is relatively new, particularly for private businesses that have never had to do an audit before, they will be willing to work with businesses and extend to June”.

High revenue, low margin businesses that are effectively penalised by the Business Licence regime, such as gas stations, are said to be especially concerned because the new requirements leave them facing the prospect of paying out at least another $30,000 in audit costs above the $5m threshold. As a result, Mr Bowe said some view the audit fee itself as equivalent to “a hidden tax”.

The question of whether a full set of audited financial statements is required, as opposed to “a more targeted attestation engagement” focused solely on revenue for Business Licence fee purposes, is among the issues that BICA is addressing with the Ministry of Finance.

Mr Bowe said other queries involve the type of certification/attestation required, meaning whether a company’s figures have to be tested or merely reviewed to identify any obvious discrepancies. “For some of the businesses that have not been subject to that level of attestation, it is going to be a challenge,” he added of the audited financial statements demand.

“They’re not used to providing all those details, and they have their own resource constraints. High revenue, low margin businesses like fuel stations have expressed grave concern. While they may have $10m in revenue, their margins are fixed at 54 cents per gallon, so the net is very small.

“No mater how simplified your business is, a full audit is at least $30,000, and the more complex it gets the higher the fee gets. There is a concern that the Business Licence fee regime is imposing a hidden tax in the form of an audit fee. The Government is moving to a corporate income tax, readying the infrastructure and reporting for it, but it would be nice to say that.”

Mr Bowe called on the Government to strike “the medium, getting what they need but at a reasonable cost to business”. He added: “You’re just trying to strike a balance where the cost of business is not prohibitive because of the cost of financial reporting.

“The other concern that has been expressed is that the number of firms eligible to perform the audit is limited. The question is: Do we have the audit manpower to do so within the time required?”