The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Close to 60 per cent of the 48 offences listed by the draft Value-Added Tax (VAT) Bill fall into the ‘very serious’ category, a well-known accountant yesterday warning Bahamians to “psychologically” prepare themselves for a new “culture of compliance”.

Reece Chipman, co chair of the Bahamas Institute of Chartered Accountants’ (BICA) VAT Committee, said the Government’s fiscal reforms would require a total mindset/attitude transformation by Bahamians when it came to paying due taxes.

Emphasising that he was speaking for himself, and not the Committee, Mr Chipman told an Association of Certified Fraud Examiners (ACFE) seminar that the draft VAT Bill showed businesses could be brought before the Revenue Court for “almost anything”.

Stressing that this showed the importance of developing a compliance culture in the Bahamas, Mr Chipman said the Bill and regulations listed 48 administrative offences punishable be fines and/or prison terms.

Of those 48, the SMS Chartered Accountants principal said more than 58 per cent - some 28 - fell into the ‘very serious’ category, while another 14 were described as ‘serious’ and just fell into the ‘minor offences’ bracket.

“You have 48 things that can go wrong,” Mr Chipman said, with the vast majority of the offences at the top end of the scale.

“The Ministry of Finance are really heavy on the compliance aspect because I think they realise the challenge they might have.”

Suggesting that the absence of a ‘tax compliant’ culture might result in the Government’s proposed Revenue Court for offenders being overrun initially, Mr Chipman added: “When you look at the legislation, and see the penalties for serious and minor offences, you can almost be brought before the Revenue Court for anything.”

Mr Chipman said potential fines, according to the draft Bill and regulations, could reach as high as $250,000.

Among the ‘very serious’ offences were businesses, not registered to collect VAT, falsely advertising themselves as being entitled to do so and charging the 15 per cent levy to consumers.

Other top-end offences described by Mr Chipman were a business that exceeded the mandatory $100,000 annual turnover threshold failing to register to pay VAT; a company failing to keep reliable accounting records; and failing to file VAT returns within the prescribed 21 days from month’s end.

Mr Chipman, though, said he had repeatedly asked for a definition of “reliable accounting records”. The Government had yet to come up with one, as had the Organisation for Economic Co-Operation and Development (OECD), despite it demanding that all Bahamian-domiciled entities main such records for a minimum five years.

As for ‘serious’ offences, Mr Chipman said these included a business failing to display a VAT registration certificate; failing to state prices on a receipt that were ‘exclusive’ of VAT; failing to issue a tax credit note or debit note; making false, inaccurate or misleading statements to the VAT Commissioner; and impeding the Commissioner by failing to comply with any provision of the legislation.

Mr Chipman said many businesses currently failed to display their Business Licence, or a current one, while the VAT Committee was also set to examine the requirement that any material change to a registrant - defined as “the sale or transfer of a taxable activity” - had to be reported to the VAT Commissioner.

Given the Bahamas’ financial services background as a nation that offered foreign clients legal tax avoidance ‘loopholes’, and its domestic tradition of tax non-payment, Mr Chipman urged the Government to define ‘tax avoidance’ in the local context.

“There have probably been quite a number of illegal submissions of Business Licences,” the SMS chief said. “What we’re going to have to do, because there’s so much tax avoidance, is at this stage of the game it has become something of a culture.

“Now we have to bring ourselves into the mainstream, a culture of compliance. We will probably have to ask the Government to clear up the definition of tax avoidance, so we will be on point with what we’re submitting to them.”

Pointing out that businessmen might split their existing businesses up into multiple companies, in the hope each would fall below the $100,000 VAT registration threshold, Mr Chipman said: “It’s such a grey area.

“You’re being very aggressive with the law, knowing $100,000 is the threshold. You will probably have to go before a judge to decide whether that’s done for tax avoidance.”

Mr Chipman also said the Bahamas would have to move away from its long-standing culture of relying on family and friends ‘in the right places’ to oil the wheels of permit processes.

Recalling a recent encounter his company enjoyed with one government agency, he said an employee informed him that they were unable to obtain the necessary document. Mr Chipman made an inquiry himself, and was told the process would take several days.

“The next day the document was on my desk,” Mr Chipman said. “I asked how that could happen. My employee said: ‘Oh, my friend was back at work’. I said: ‘So you mean your overlooked all that [process] and gave us this document’?

“These are the sorts of things happening that have to stop happening,” the accountant added. “We can’t continue that way.

“I’m Bahamian and understand the culture. I’m one of us. I know how to put the seatbelt on and not put the seatbelt on. That has to change.”

Mr Chipman added that the Bahamas’ non-compliance culture was also incompatible with its increasing integration into the world economy, and chairmanship of organisations such as the Caribbean Financial Action Task Force (CFATF).

“I think we’re going to see a thrust to compliance,” Mr Chipman said. “We have to look at it psychologically. We can’t just change the culture.

“The psychological impact of adjusting to a new tax system, we have to psychologically gear ourselves up to 15 per cent more, and see what we will be spending on and what we will cut.

“The idea is to take little steps to change the culture of non-compliance. We don’t have a compliance culture.”