The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

UP to one in five Business Licence filings are facing extra scrutiny by the tax authorities, it was revealed yesterday, with construction, landscaping and “home-based” auto dealers causing particular concern.

Dexter Fernander, the Department of Inland Revenue’s (DIR) operations manager, told Tribune Business the agency is especially zeroing in on “discrepancies” where there is a “15 percent or more variance” between a company’s Business Licence turnover figures and that derived from their VAT filings.

With the Department able to calculate a company’s annual turnover based on its VAT payments, he signalled that it is using this and other “third party databases” made accessible via its upgraded tax administration portal to “cross-check” and better verify the accuracy and integrity of Business Licence filings.

Revealing that the Government’s main revenue agency is “a little concerned” about specific industries, Mr Fernander told this newspaper it was working to try and understand how sub-contractors in the construction industry can be reporting higher annual turnovers than the main project contractors who hired them.

And he disclosed that he is “delving into” the operations of road-side ‘Mom and Pop’ automobile vendors. Mr Fernander said that, while vehicles acquired at overseas auctions were being imported under company names, the individuals involved are often deny that their money is involved and, instead, allege that they are acting merely as agents for buyers who wire money to them in their name.

“We have asked individuals to be more realistic and truthful” he told Tribune Business of Business Licence declarations. “Why are you declaring zero turnover for three consecutive years. If you are a landscaping company, how are you paying your staff on zero turnover?

“We’re looking at maybe 15-20 percent [of Business Licence] applications that we have to offload and do some research into. Those that have discrepancies and have variances of more than 15 percent, or persons reporting the same turnover for the last three years and no support- ing documents, or uploaded information to justify why turnover is zero.....”

Mr Fernander explained that the 15 percent referred to the magnitude of the difference between a company’s annual turnover, as calculated via its VAT returns and payments, and the turnover figure submitted for calculating its annual Business Licence fee.

“Any variance of greater than 15 percent between VAT and Business Licence turnover, we have to have some conversation, obviously,” he told this newspaper. “If it’s an area where there are high imports, high demand, it requires some extra due diligence.”

The “growing pains” endured by businesses with the Department of Inland Revenue’s upgraded tax portal since its upgrade in December, as well the enhanced Business Licence verification requirements that mandate companies with annual turnovers greater than $5m produce full audited financial statements, have only added to the private sector’s already considerable ‘ease of doing’ business concerns.

Mr Fernander, though, said the tax authorities are adopting a risk-based approach and turning around Business Licence renewal applications from “low risk” sectors such as straw vendors and school lunch providers, who typically fall below the annual $100,000 turnover thresh- old, “very quickly”.

“We have made it easier for those filing documents,” he said. “At the end of the day, at 8pm, we’re issuing 300-400 [Business Licences] per day.” However, the Department of Inland Revenue is using all tools available to it to obtain evidence on whether Business Licence and VAT declarations are accurate and truthful.

This, Mr Fernander said, extends to monitoring social media booking schedules for the likes of home-based nail technicians in a bid to calculate whether their turnover may have brought them within range of the $100,000 VAT registration and Business Licence fee payments. And the new online portal is designed to drive greater tax compliance through enhanced cross-checks of the information provided by firms.

“As we get this new portal, it helps us to crosscheck and see better into reports from registrants,” the Department of Inland Revenue’s operations manager explained. “Definitely it allows us to do a lot more cross-checks. The upgrade has allowed us to include other supporting documents, third party databases, allowing us to do spot checks.

“We’re doing some research and asking individuals to be more honest with the information they provide to the Department of Inland Revenue. We are, with some industries, a little concerned about the compliance level and trying to further delve into why.”

Citing concerns with construction and landscaping, in particular, Mr Fernander said of the former:

“Builders who have been sub-leased contracts (sub-contractors) are reporting higher turnover than the main builders who got the contract. We are concerned. We are trying to take our time to figure that out.

“I’m delving into auto- mobiles. We’re trying to understand the industry, these ‘Mom and Pop’ home-based automobile operators. When we con- sider what is revenue, it’s anything that goes through your company. In many instances, the individual imports the automobile in the company’s name from an [overseas] auction.

“However, what we are getting is that the individual who participated in the auction is saying it’s not their revenue. They ask the person [buying it] to wire the money in their name. How’s the bank doing it? I’m trying to figure out how the commercial bank is doing this because, if the wire is not in my name, how’s the bank approving a wire for a transaction that’s not in their client’s name?

“We’re looking at this to see if this is something we need to review or further look at this area.”

Mr Fernander said further confusion was also arising because of difference’s between a company’s projected and actual annual turnover as submitted for Business Licence purposes.

“What we’re having is the registrant having a discrepancy with the accountant,” he explained. “If you look at the Business Licence Act amendment from 2022, it said that in January 2023 you had to submit the projection for 2023. You would pay your projection from January 1, 2023, to December 31, 2023.

“Individuals were assessed based on the projection submitted. Similarly, that language stayed in the Business Licence Act 2023. What has happened is that a lot of people made a projection, and the account- ant’s submission at the end of the year is showing a variance higher than the actual projection.”

As a result, those companies with 2023 full-year turnovers higher than projected now have to pay additional Business Licence fees based on this variance. And businesses are now having to file, and apply for, their 2024 Business Licence renewals based on the actual turnover for 2023.

Mr Fernander said many companies were approaching the Department of Inland Revenue to challenge why they were getting two bills and seemingly “getting assessed for two years”. He added that they are having to pay for 2024 plus cover any 2023 variance between projected and annual turnover for Business Licence fee purposes.

“Some accountants have unfortunately not read the Business Licence Act and don’t have a clear understanding of Business Licence actuals and Business Licence estimates,” Mr Fernander said. “Some accountants and companies are in shock when they see the bills being generated for 2023. It’s the difference between what was projected and the actual turnover of companies.”

The deadline to submit initial Business Licence flings is fast approaching on January 31, with fee payments due at end-March.