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Vat Rate Will 'Double' With Poor Compliance

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Tax Coalition co-chair yesterday said the Government “desperately” needed to release its Value-Added Tax (VAT) education curriculum and modules, warning that this was vital to “maximise compliance” immediately the new tax kicked in.

Robert Myers told Tribune Business that the 7.5 per cent VAT rate would have to “double” if the new tax’s compliance rate matched the 40-50 per cent achieved with Customs duties and real property tax.

To prevent this from happening, he argued that it was vital to get the “hundreds, thousands” of small Bahamian businesses with annual turnovers exceeding $100,000 “up to speed” via the slow-burning VAT education campaign.

Mr Myers said many of these firms lacked the necessary accounting and bookkeeping system for VAT, something that threatened to over-burden both larger companies and the formal Bahamian economy.

“There;’s definitely some major, major things big companies have to do to implement this. They’ve already started,” he told Tribune Business.

“My concern, quite frankly, is for small companies that have little to no records. There are hundreds, thousands of those companies that put their money under the mattress. All have turnovers above $100,000, but have nothing but a current account. We’ve got to get all these people up to speed.”

Failing to do so, Mr Myers said, would rebound on both the Government and the private sector, due to lower-than-necessary VAT compliance rates.

For the former, this would mean lower revenues, and a higher fiscal deficit, than projected, leading to further growth in the $5.5 billion national debt, while Bahamian businesses would face an increased VAT rate (and tax burden) to compensate.

“The most important thing here is compliance,” Mr Myers told Tribune Business. “The absolutely critical thing for the private sector is to have the maximum amount of compliance.

“If we don’t, we will have the same problems [as with Customs duties and real property taxes. If VAT comes in at 35-40 per cent, we’ve got a problem. We’ve got to get compliance up.”

Mr Myers said the Coalition for Responsible Taxation had repeatedly “stresses” to the Government the need to improve abysmally-low compliance rates with the existing tax system.

Suggesting that the Christie administration would have to drastically increase the VAT rate if compliance levels were 45-50 per cent, he added: “With compliance at 80-90 per cent, 7.5 per cent would probably work.

“But if compliance is at 35-40 per cent, they’re going to have to double the tax. Those in the formal economy are further disadvantaged; that’s the problem with low compliance.

“The less compliant people are, the more tax the compliant have to pay. That’s what we’re screaming at them over fiscal reform; we have to improve compliance. Otherwise you’ll tax the formal economy right out of business, tax us into uncompetitive territory.”

Whether widespread non-compliance among Bahamian small businesses would drop VAT collections to the same level as Customs duties/real property tax is uncertain, as less than 10 per cent of companies are responsible for generating more than 90 per cent of this nation’s economic activity.

The Government has thus already served notice that it will focus its attention on firms with an annual turnover greater than $5 million, requiring them to file their VAT returns and payments monthly, since they will generate the bulk of its cash flow.

Mr Myers, meanwhile, told Tribune Business he felt there was still “sufficient” time to implement VAT smoothly come January 1, 2015, provided both the Government and private sector “work well together and efficiently” to educate all players.

“We’re waiting for the first modules for training from the Ministry of Finance now. We need those desperately,” the Tax Coalition co-chair said. “We don’t have any modules or curriculum to-date. We’ve got to get it going; it’s already September.”

He added that the private sector had urged the Government to prioritise the various VAT training segments, suggesting that it start with the registration process and how companies use the online filing/payment system.

The Coalition is also calling on the Government to ‘register’ VAT trainers, so particular industries will know specific persons they can go to with their concerns.

Mr Myers told Tribune Business that the greatest complaint currently, particularly from sectors such as the auto industry and retailers, was the absence of tariff rate adjustments to account for VAT’s impact on prices.

“They think it’s going to hurt the cost of their goods. It’s hurting the cost of all our goods,” he said. “Prices are going to go up. No one will be happy.”

Mr Myers said the Government had lowered tariffs on some construction materials and food products, in a bid to “create less impact on staple things”.

He added that based on the Tariff Adjustment List produced as part of the Government’s VAT package, some prices would actually decrease, as the border tax cut was greater than the new tax’s effect.

“On the whole, the tax is going to raise prices,” Mr Myers said. “The price of goods will remain the same. It’s the VAT that will cause an increase in the price of goods and services.

“We’re prepared for that. We’re hoping the impact of that will not cause to big an impact in the economy.”

Comments

Cornel 5 years, 5 months ago

How hard is this to figure out. No one pays their taxes now, so why would anyone believe that people will pay a new tax. You have under 50% compliance now so it will be the same with VAT or lower.

The Government can not stop CRIME. The Government can not collect TAXES. All the Government can do is spend (meaning waste) the money that "the few" actually pay.

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Sickened 5 years, 5 months ago

Here's how it's going to work. Those people who don't pay duty now (i.e. pay off the custom duty officers) won't pay duty in 2015 either. Thus, they will not be paying the VAT on imported goods and thus will not need to or have incentive to charge/collect VAT on those same goods from their customers. Any legitimate business will be paying VAT on imports UP FRONT and will have to charge the customer VAT so that they can recoup the import VAT they already paid. As a result the price difference between the legitimate company's goods and the connected person's goods will be even higher after VAT. More people will buy from the now much cheaper 'connected persons' store which will run the legitimate stores out of business. The custom duty officers will be happy because they will make more 'tips' as legitimate businesses will be forced to start dealing with them and government will be happy because their crony dirty custom officers will continue to vote for them and spread the word of how great the government is.

And the disease continues unchecked!!!!

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The_Messenger 5 years, 5 months ago

The implementation of VAT on top of duty is nothing more than lipstick on a pig.

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