The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Small businesses were yesterday urged not to “abuse their privileges” under the revised Value-Added Tax (VAT) structure, a consultant warning them not to treat due taxes like unscrupulous firms treat National Insurance Board (NIB) contributions.

Mark Turnquest, of Mark A. Turnquest Consulting, told Tribune Business that small businesses and entrepreneurs needed to be “responsible” in return for the Government allowing them to file VAT returns less frequently and also adopt a cash-based reporting system.

“I agree with the cash-based reporting for a small business filing twice a year,” he said. “My only concern is that I want the small business owners to be responsible and not abuse the system.”

The Christie administration simplified VAT reporting requirements for small and medium-sized businesses, allowing those with annual turnovers between $0.4 million and $5 million to file returns every quarter, and those below the $400,000 threshold to report semi-annually.

And companies below a $400,000 annual turnover will also be able to calculate their VAT liabilities on a cash basis, calculating these as either a percentage of cash receipts or ‘netting off’ VAT input and output payments.

However, Mr Turnquest warned Bahamian small businesses and entrepreneurs not to succumb to complacency and temptation as a result of the less-stringent filing/reporting demands.

Companies with annual turnovers below $400,000, he suggested, might feel they can use VAT monies to purchase inventory for the business and then ‘make this good’ in the six-month period before they have to submit the tax due to the Government.

Mr Turnquest likened this to NIB contribution non-payers, who frequently deducted the employee contribution from staff salaries but failed to pass the due payments on to the nation’s social security system.

“That’s a big problem that I foresee might happen,” he told Tribune Business. “You may think it’s your money, but it’s the Government’s money.

“I don’t want the small business owners to abuse the privileges they have, and keep that money and not report it to the Government. If you use VAT monies to invest in slow-moving inventory, it may not pay out in time.

“It would damage the system, and the Government really needs the money. We’re in a critical space for the country, as we need to determine if the revenues from Customs Duties and VAT will dent the $500 million deficit and $6 billion national debt.

“That’s the yardstick. Nothing else is relevant right now.”

Elsewhere, Mr Turnquest urged the Government to either maintain the VAT rate at 7.5 per cent for three years, or reduce Customs Duties/Excise Taxes further to compensate if this was increased.

This, he explained, would protect companies with pre-existing fixed contracts that “may be difficult to renegotiate”.

“Higher prices resulting from VAT will pose a problem for my clients with service contracts,” Mr Turnquest warned. “If they’re going to increase the VAT rate, they have to reduce the Customs Duties and Excise Taxes to compensate.

“My advice to small and medium-sized enterprises (SMEs) is to have a clause inserted in all contracts that read ‘price changes could be made if VAT increase’.”

Mr Turnquest also called for VAT training to “focus on three different accounting and reporting perspectives - manufacturing, merchandising and services - because all of these organisations have diverse business models”.