By NEIL HARTNELL
Tribune Business Editor
The Bahamas will likely lose its longstanding stability in the world’s Paying Taxes rankings and “slip lower” than its current 45th position when Value-Added Tax (VAT) is introduced next year, a Tax Coalition co-chair says.
Gowon Bowe, whose PricewaterhouseCoopers (PwC) accounting firm compiles the annual ‘ease of’ Paying Taxes rankings, told Tribune Business that VAT might have “a significant impact” on the Bahamas’ standings in the world rankings.
The Paying Taxes report, released last week, placed the Bahamas in 45th spot out of 189 nations, keeping this nation in the top 25 per cent of countries when it came to the total tax burden on companies and time/number of payments required.
The Bahamas fared especially well in terms of number of annual tax payments that companies had to make, with just 18 (12 labour-related, six other) payments required.
And the PwC study said it took just 58 hours for Bahamian companies to complete the process of making these payments, with 48 hours required for the labour-related taxes.
This placed the Bahamas top of the Central American and Caribbean region, as the country where businesses needed the least number of hours to fulfill all their tax obligations.
And this nation was also ranked fourth out of 20 countries when it came to the number of tax payments companies had to make, only Guatemala, the Dominican Republic and Puerto Rico requiring fewer.
Yet where the Bahamas fared poorly, at least on a regional level, was on total tax rate, which measured the level of taxes borne by a company as a percentage of commercial, or pre-tax, profit.
The Bahamas’ 46.6 per cent total tax rate or burden, some 40.5 per cent of which came from other taxes, left it just 16th out of 20th in the Caribbean nation.
And this burden, especially for the relatively untaxed services industries, is only likely to increase with VAT’s arrival on July 1, 2014, next year, provided the Government’s schedule goes according to plan.
The time taken to process and pay taxes, and the number of tax payments, will also increase come next year - all developments that are likely to cause the Bahamas’ Paying Taxes ranking to slide.
Mr Bowe, who said PwC’s Bahamas subsidiary participates in, and contributes data to, the survey, said there was “a bit of skewing” in terms of the findings.
The Paying Taxes survey, he explained, was geared towards diverse economies with a more even split between manufacturing and services.
In the Bahamas’ context, it did not really account for the services-oriented nature of the economy, Mr Bowe said, or the fact that the current tax burden on these sectors was likely much less than the almost-47 per cent cited in the 2014 report.
Suggesting that this total tax rate was more likely to apply to Bahamian companies involved in manufacturing, or importing, Mr Bowe said of the survey: “It is taking what it would normally cost a manufacturing company, Customs duties at 35-40 per cent; a 0.5-1.5 per cent Business Licence; and on top of that is coming VAT.”
Mr Bowe agreed that it was “quite a substantial tax rate that is placed on goods-related industries”.
But, with Customs duties set to drop to accommodate VAT, the PwC accountant and partner suggested that the tax burden facing such industries might “not radically change” when tax reform was implemented.
Yet, in the current pre-VAT environment, Mr Bowe said the burden - or total tax rate - facing Bahamian services industries, such as attorneys and accountants, was likely “less than 10 per cent”. Tourism, with its 10 per cent occupancy tax, likely incurred a burden of no more than 15-20 per cent.
“That’s where it’s going to have a notable increase from where it now stands,” Mr Bowe told Tribune Business of VAT’s likely impact on services industry taxation.
“Which is what the Government suggested all along with VAT - that it was designed to broaden the tax base, and not just heavily tax goods but tax services.
“I don’t think most services industries fear that or take it as a negative, as they’ve not been taxed for a while. We all appreciate there has to be some sort of taxation on services industries.”
The Bahamas’ ranking in the Paying Taxes survey has remained relatively stable since it first entered in 2009, starting at 39th and, this time around, improving from the previous year’s 51st spot.
Mr Bowe conceded that this ranking was now set to “alter slightly”, and added: “It has stayed fairly stable, primarily because there hasn’t been any substantial shift in the tax structure. “That’s coming next year.”