The Tribune

By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

A FORMER Cabinet minister yesterday called for the law dealing with VAT disputes to be “rebalanced” as he branded the ease of doing business in The Bahamas “a joke”.

Dionisio D’Aguilar, Superwash’s principal, told Tribune Business that mandating businesses come up with 100 percent of the disputed tax sum before they can challenge the Department of Inland Revenue’s (DIR) assessment is “too onerous” on the private sector and “crafted to give all the advantages to the tax collection authority”.

Speaking after it was revealed that Sandals is challenging the tax authority’s demand for it to pay the disputed $30.844m upfront in cash, rather than via bank guarantee or other security he argued

that the appeals process “has to be fair and has to be seen to be fair” to both the Government and businesses.

Rather than paying the disputed sum in full, Mr D’Aguilar told this newspaper a more “balanced” method would be for companies to pay a percentage of the disputed VAT and Business Licence fees. This, he argued, would ensure those contesting the Department of Inland of Revenue’s demands have a stake in the outcome without crippling their operations and cash flow through having to come up with huge sums.

And, while not impeding the authorities’ ability to pursue and collect from genuine tax delinquents, he suggested that the law be further revised to mandate that the losing party - whether taxpayer or DIR - pay the other side’s legal and other appeal costs. This, the former minster of tourism and Immigration argued would deter both sides from bringing “weak” and frivolous appeal cases.

However, Mr D’Aguilar said the VAT Act as presently written is almost tantamount to making corporate taxpayers “guilty before they have a chance to prove themselves innocent” by mandating that the full sum in dispute be paid before a challenge to the Tax Appeals Commission can proceed.

The VAT Act’s section 81 (s) (c) stipulates that any challenge to a Department of Inland Revenue tax assessment must be “accompanied by payment of the total amount of tax assessed, or security for such amount, in a form acceptable to the [VAT] comptroller at the time the assessment is lodged”.

“As time progresses, and you begin to see the extent of this very unfair provision or component of the VAT Act, it just goes against the grain of being almost found guilty before you’ve had a chance to prove you are not,” Mr D’Aguilar told Tribune Business.

“It’s primarily executed by the public service and, living in such a small community, it could be abused. If the Inland Revenue comes along and says ‘we think you owe this tax’, and you say ‘I don’t think we do’, then Inland Revenue says you have to pay the full tax while you do whatever to litigate and despite you disputing it.

“There needs to be some boundaries on that when you are disputing $30m and $10m tax bills... I’m not saying that the Department of Inland Revenue shouldn’t have the right to pursue aggressively what they think is the right tax. That’s their job.”

Mr D’Aguilar suggested that, rather than companies lodge the full disputed VAT sum before they can appeal a Department of Inland Revenue assessment, they instead pay a percentage of the amount demanded such as 10 percent to ensure they have a stake in the outcome and do not delay or drag out challenges.

Tribune Business understands that the Minnis administration looked at

such a reform but, ultimately, no changes were made to the relevant provisions in the VAT Act. Many in the private sector view the way the appeal provisions are written as being designed to deter appeals against government tax assessments.

Noting that companies incur legal costs, as well as “time, disruption and effort”, in contesting Department of Inland Revenue assessments, he told this newspaper: “I think the law has been crafted to give all the advantages to the tax collection authorities.

“I think it needs to be rebalanced where businesses have the opportunity to move these disputes into the courts, and shouldn’t be hugely disadvantaged by exercising their right to pursue the matter in court.... Everyone complains that the Tax Appeals Commission in recent times is not functioning as it should.

“I think people should have the opportunity to hold public officers to account to a certain degree. You cannot come along and say: ‘You owe me $3min taxes’, I say ‘I don’t’, and you say I have to pay $3m to contest it. Or that they’ll not give you a Business Licence until you pay it. To me, that doesn’t sound right,” Mr D’Aguilar said.

“There should be a rebalancing that gives the Department of Inland Revenue the ability to pursue delinquent taxpayers with the right of taxpayers to legitimately contest decisions of the Department of Inland Revenue. There appears to be a belief among the tax authorities, and past experience has drawn them to this conclusion, that everyone is trying to lie, duck and cheat on taxes.”

Sandals Emerald Bay and its operator, Clearview Management, are from the only company being pursued by the Department of Inland Revenue for taxes allegedly owed from past fiscal years. Few companies have spoken out about how aggressive these audit, assessment and collection efforts have been, but it is possible to get an insight from the Sandals matter and previous Tribune Business reports.

Two BISX-listed firms, AML Foods and Cable Bahamas, have both disclosed to their shareholders that they are contesting Department of Inland Revenue demands for around $1m in taxes each. AML Foods in late 2023 pledged to “vigorously contest” the Government’s demand that it produce nearly $1m in “unpaid” VAT related to Grand Bahama’s post-Hurricane Dorian economic recovery zone (SERZ).

It added then that it will “initiate a formal dispute” against the Department of Inland Revenue’s (DIR) assessment. To trigger the appeal, the Solomon’s and Cost Right operator said in notes to its financial statements that it would have to either place a bond or make full payment of the $925,732 in alleged arrears.

And Cable Bahamas, in its 2023 annual report, confirmed that its Aliv mobile subsidiary was “involved in a formal dispute with the Department of Inland Revenue concerning an assessment issued... for unpaid taxes and fees total- ling $1.594m.

“The assessment covered the period from April 1, 2017, to December 31, 2021, and related to VAT and Business Licence fees on insurance proceeds and international inbound roaming charges among others,” Cable Bahamas said, adding that it had “deposited” the disputed sum with the tax authority and aimed to “vigorously contest” the demand.

Mr D’Aguilar, meanwhile, said Sandals was “absolutely right” in its argument for securing a bank guarantee to cover the disputed sum rather than make a cash payment. “It has to be fair. It has to be seen to be fair,” he said of the dispute process. “Everyone should an equal right to contest a decision as traumatic as that [Sandals].

“I’m not saying Sandals is right, and I’m not saying Sandals is wrong. They should have the right to pursue it without having to give all that money to the Government first.” The former minister added that requiring the losing party to pay the other’s legal and other appeal costs was on way to prevent frivolous challenges and tax assessment findings as he lamented the current law’s ease of doing business impact.

“The ease of doing business in The Bahamas is a joke,” Mr D’Aguilar told Tribune Business. “There’s nothing easy about doing business in The Bahamas. Speak to any businessman in The Bahamas and they’ll tell you that. It never gets any better.

“The politicians try and make a difference but every time they make a law the bureaucracy kicks in and they interpret as they wish to interpret it. Nothing changes because the bureaucracy seemingly does not improve. They just pile on the paperwork, more paperwork and more confusion. There’s nothing easy about doing business in The Bahamas, period. That’s a joke.

“As you unleash the Department of Inland Revenue on the business community, and they interpret everything any way they want, you cannot fight them. You must pay what they say you must before you can contest it. Most people say it’s not worth it and just pay it,” Mr D’Aguilar said.

“I’m not aware of any company successfully challenging a ruling by the Department of Inland Revenue and getting their money back. There’s no posted child who’s taken on City Hall, won and got their money back. There’s no example of that. You want to get on with running your business, and don’t want to be in painful and protracted litigation with Inland Revenue. No one wins that battle.”