The Tribune

• Accountant: Resolve tax authority ‘inefficiency’

• Bahamas must avoid business ‘panic’ on reform

• Gov’t more interested in companies’ ‘survival’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Department of Inland Revenue (DIR) must become “a well-oiled machine” that is far more responsive to taxpayer needs under a corporate income tax regime, a prominent accountant is urging.

Kendrick Christie, president of the Association of Certified Fraud Examiners Bahamas Chapter, told Tribune Business in a recent interview that the Government’s main tax collection authority will require a clear set of guidelines, benchmarks and timelines for dealing with companies given the increased complexities that corporate income tax presents when compared to the existing Business Licence regime.

Disclosing that he has had clients waiting up to two months for their Business Licence approvals, he argued that this cannot persist under corporate income tax given that companies and their auditors will be required to provide a much more in-depth verification. While Business Licence fees are calculated on gross turnover, corporate income tax is levied on a firm’s profits, and certifying the latter will require a full audit by external accountants.

Questioning whether the Department of Inland Revenue will have “sufficient resources” to cope with a corporate income tax, which would potentially replace the Business Licence for most if not all Bahamian companies depending on the reform option selected by the Government, Mr Christie told this newspaper it was imperative that the private sector “not panic” over change that is likely two to three years away at the earliest.

“One thing the Government needs to consider moving forward is to improve service and make sure the Department of Inland Revenue is a well-oiled machine that is alert to persons’ concerns and queries,” he asserted. “They need to deal with issues efficiently and fairly....

“I go on record that it’s inefficient. The Department of Inland Revenue needs to have more guidelines, metrics and timelines to respond to queries. We have clients who have not had their Business Licence approvals in a timely manner. They wrote back and said they are working on it.

“We always brag about how we’re comparable to the world, but in other places, within 10 days of applying you either have it approved or rejected. I’ve had clients go a month or two months waiting on a Business Licence approval. If we’re going to move to a corporate income tax, which calls for better records and audits, no longer do auditors have to vouch for revenue - we actually have to verify the numbers to make sure you are making a profit or loss.”

Mr Christie added that, by the time any corporate income tax is implemented, the Department of Inland Revenue should have sufficient resources to ensure better relations with taxpayers and that disputes, challenges and other questions are addressed more rapidly than at present.

The Government, seemingly preparing for the switch to a corporate income tax, will next year require all companies with an annual turnover greater than $5m to provide audited financial statements to verify the accuracy of the revenue/turnover figures upon which Business Licence fees are calculated. Those with turnovers above $250,000 will need to present review statements, compilation reports and certifications to confirm the accuracy of their submissions.

Some accountants have suggested these demands are overly burdensome, and the Government’s consultation ‘green paper’ on corporate income tax acknowledges that the administrative costs associated with it are higher. However, it is generally viewed as a fairer, more equitable and less regressive tax than the Business Licence fee.

“I think there’s a lot of contention every time a new tax system is floated out there,” Mr Christie told this newspaper. “The business owners I’ve talked to since this was floated out there are very concerned about the impact - it was the same with VAT. A lot of my clients are concerned about the cost of doing business in The Bahamas.

“There’s some beneficial aspects with a corporate income tax. This is the flaw in the current system with the Business Licence fee. You can make a loss and still have to pay a Business Licence fee. It’s called a Business Licence, but it’s really a tax; taxation on gross earnings.

“We all know the tax base is not sufficient. It’s not raising enough tax revenue for the Government to do what it’s being called upon to do. A corporate income tax would be a fairer tax because it will allow for losses to be capitalised and written off against the tax.”

Given that a corporate income tax will be levied against a company’s ‘bottom line’, whereas the Business Licence fee is based on the ‘top line’, Mr Christie said switching to the former will see the Government become “interested in businesses surviving and being able to pay the tax, and invest in equipment and personnel..

“A lot of people don’t like change, don’t like to contemplate change, but being in the current situation where the Government is trying to grow the economy and carry out projects, it’s certainly commendable for them to float this idea out,” he added. “What I want to see is a phased approach to it, with the education process and empirical data.

“What we don’t want is to have companies and persons panic. You float the information out so they can read it, but persons are so busy running their companies it’s good to have an education process and give people time to prepare. Our economy, and certain sectors of our economy, are very fragile.

“We don’t measure confidence in this country, and we need to start. This metric tells us where we are in consumer confidence and business confidence. The Government has to work on business confidence because a lot of owners are concerned about the corporate income tax, so they might slow down on investment,” Mr Christie said.

“We all recognise the Business Licence system is problematic. There are issues around what is turnover and revenue, what is acceptable. There is no recognition of the fact a company is making losses, and the costs associated with running a business are not taken into account with how the tax is levied. The Government at some point will have to look at a personal income tax. I don’t think that’s part of the proposal, but VAT is certainly a regressive tax.”

The Government, in its ‘green paper, indicated it was leaning towards reforms that will see most Bahamas-based businesses pay a “modest” corporate income tax of either 10 or 12 percent with the only exception being small firms earning less than $500,000 annually.

The long-awaited ‘green paper’ on “corporate income tax strategies for The Bahamas” revealed that none of the four corporate income tax options being considered will have a positive impact on Bahamian economic growth, employment, foreign and domestic investment with the fall-out negative in all bar two instances.

This will be the first such income-based levy in the country’s history (NIB excepted), and is intended to ensure The Bahamas complies and fulfills its obligations as one of 140 countries that have signed on to the G-20/Organisation for Economic Co-Operation and Development (OECD) drive for a minimum 15 percent global corporate tax. In the first instance, this applies only to corporate groups and their subsidiaries that have a minimum annual turnover in excess of 750m euros.