By NEIL HARTNELL
Tribune Business Editor
The Government has been urged to avoid an “accounting nightmare” and rethink plans to make Value-Added Tax (VAT) registrants liable to pay the tax once a customer is billed.
Prominent businessman Dionisio D’Aguilar told Tribune Business urged the Christie administration to buck standard international VAT practices and make businesses liable to charge, collect and pay the tax once they receive payment for the goods/services rendered.
The Superwash chief, and former Chamber of Commerce president, did, though, back the Government’s plans to make companies remit VAT payments to them monthly (within 21 days of month’s end).
Wayne Lovell, KPMG Barbados’ senior tax director, told a Bahamas Chamber of Commerce and Employers Confederation (BCCEC) luncheon last week that companies there remitted VAT every three months - rather than the monthly basis the Christie administration is proposing.
However, Mr D’Aguilar said the Government was “absolutely right” to insist on monthly payments from its several thousand VAT registrants, as leaving it any longer might make it difficult to receive payments.
But, speaking after John Rolle, the Ministry of Finance’s financial secretary, confirmed that companies would be liable to pay VAT once they issued a bill/invoice to a customer, Mr D’Aguilar told Tribune Business: “That’s a mistake.
“I would think that while common practice is that VAT becomes liable when you bill someone, the Government should rethink that and base it on a cash basis: When people pay.
“Otherwise, it becomes incredibly complicated to keep track of giving people for money they did not recover from their customer. It becomes an accounting nightmare. It’s very cumbersome, very complex to keep track of.”
Mr Rolle had indicated that Bahamian companies would be able to recover VAT paid on receivables/write-offs, although he provided no details of how this would work at the BCCEC seminar.
Mr D’Aguilar, though, questioned write-offs of accounts receivables would work, asking if the benchmark would be 90 days without payment, for instance, or 120 days.
“If you are going to issue a credit to business, if you’re going to be entitled to a VAT credit for sales that a customer ultimately does not pay for, when does that sale become uncollectable, become a write-off,” Mr D’Aguilar asked.
He instead suggested that VAT becomes liable when the customer pays the bill, adding that Central Revenue Agency (CRA) auditors could check the paper trail, examining the difference between cash billings and cash receipts, to determine the correct amount of tax was being remitted.
The former Chamber of Commerce president added that companies with large accounts receivables, or who allowed customers to pay within 30 days, would bear the brunt of this issue.
Mr Lovell last week also warned the Bahamian business community to look carefully for the ‘price element’ in VAT’s calculation, namely whether the tax would be based on cost/sales price; market value; or CIF (Cost, Insurance, Freight). Mr Rolle did not clarify this element.
Still, Mr D’Aguilar backed the Government for insisting that businesses pay it due VAT within 21 days of month’s end.
Asked whether the Bahamas should adopt the quarterly payments scheme used by Barbados, he replied: “Absolutely not. The Government is absolutely right to do it monthly.......
“The longer you let it slip, the more difficult it will be to collect it. If you wait a quarter, another quarter, it will be six-nine months before you realise there’s a problem.”
Pointing out that the Government did not have a good reputation for collection/enforcement of its existing taxes, as evidenced by its $500 million-plus real property tax receivable, Mr D’Aguilar said: “Government needs to be all over this, as it doesn’t have a reputation for collecting.
“Putting a bunch of civil servants at the top of this is not the best way to address this. Real property tax, Business Licence fees, they’ve not found a way of collecting.
“This is almost something you outsource to someone and give them 1 per cent commission.”
He added: “Businesses pay when there are consequences for non-compliance. You need to figure out how to make this work. To hire 50 bureaucrats and put them in charge of collecting, you’d be wasting your time, and we have evidence of that in real property tax, Business Licence and NIB.”