The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will pay Value-Added Tax (VAT) on goods and services where it competes with the private sector to ensure a “level playing field”, it was recently revealed.

Ministry of Finance consultants, in a presentation to the Bahamas Institute of Chartered Accountants (BICA), said the Government wanted to avoid a situation where it was in “unfair competition” with the private sector.

“Government will be required to pay VAT, and charge VAT on supplies and services that compete with the private sector,” said Pauline Peters, the former head of Grenada’s tax authority, who is now a leading adviser to the Government on implementation of the Bahamas’ VAT.

Identifying such areas as the lease/rent of buildings, or lease of heavy equipment, Ms Peters reiterated: “Those items that compete with the private sector will be charged VAT.

“We did not want unfair competition. This is going to be an equal and level playing field, so any supplies or services the Government delivers that compete with the private sector will be charged VAT.”

However, Ms Peters clarified that ‘one-of-a-kind’ services that the Government provided to the Bahamian public, such as Driver’s Licences and vehicle inspections/licensing, would not have VAT levied on them.

The Ministry of Finance consultant, though, also disclosed that Bahamian companies would only be able to “carry” excess VAT credits for a maximum three months.

Such credits would arise when Bahamian companies paid more in VAT on their inputs than they received on sales to consumers, meaning they were due a net remittance payment from the Government.

“The businesses that have excess credits, what is being proposed in the legislation is that those excess credits will be carried for three months, and you will be able to use that for input tax reduction,” Ms Peters disclosed.

“If any credit remains after three months, and above a certain value, businesses will have to apply for a refund.”

Seeking to bolster private sector confidence in the proposed VAT system, Ms Peters added that if the Government failed to pay firms their VAT ‘refunds’ within 60 days, it would be liable to pay interest on top of the principal owed.

“It will determine the level of business confidence in the VAT system,” she added.

Ms Peters said Grenada had experienced “no problem” in paying VAT refunds to its businesses on time, adding that these had been made within the two-month, 60-day period allowed.

The concern here is that if the Government fails to pay VAT refunds on time, Bahamian companies will lose vital cash flow and working capital that may potentially cripple their operations.

Ms Peters, though, said Grenada had been able to “budget” for what the expected refunds were without too much disruption. She added that refunds, as a percentage of revenues, were “minimal”.

However, although they will still have their $600 annual exemption and reduced Customs duties, Bahamian shoppers returning from Florida are likely to be disappointed that they will have to also pay VAT on their purchases, as it is a tax collected “at the border”.

Ms Peters also implied that VAT might provide an opportunity to streamline corporate structures.

She disclosed that companies, even if they were part of a larger group, if they had an annual turnover in excess of $100,000 and were “registered with the Government as a separate legal entity”, would have to levy VAT.

However, if businesses wanted to “bring all companies under one entity”, it would be possible to register for, and pay, VAT to the Government as a single entity.

The Bahamian hotel industry, Ms Peters added, was the only sector currently attracting a different VAT rate (10 per cent) from the proposed standard 15 per cent.

“It is one of the principals with VAT to have as few rates as possible,” she said. “Not to have too many rates to complicate the administration.

“We do not want to make it to complicated for businesses collecting money on the Government’s behalf. One single rate across the board is an ideal situation.”

Yet in Grenada and Jamaica, cell phone calls were being taxed at a higher VAT rate, namely 20 per cent.