The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Despite criticism that the Government’s plan to levy Value-Added Tax (VAT) on services transactions between Grand Bahama Port Authority (GBPA) licensees would likely generate zero revenue for the Public Treasury, a senior finance official yesterday suggested the move was more about “checks and balances”.

Financial Secretary John Rolle, speaking to Tribune Business at a Bahamas Institute of Chartered Accountants (BICA) VAT seminar, said business-to-business transactions under a VAT regime contribute tremendously to compliance and enforcement.

The Grand Bahama Chamber of Commerce, though, has taken issue with the Government’s intention to require levying of VAT on business-to-business services transactions between Grand Bahama Port Authority licensees.

It says that while the VAT paid may be credited back to the business, this is “an unnecessary exercise”. “It also produces an unnecessary but costly exchange between companies that nets Government no tax revenue. It subverts a core principle of Freeport’s operation as an international free trade zone,” the Chamber said.

Attempting to justify the rationale behind the move, Mr Rolle said: “A very important part of the VAT process of checks and balances is that even though the revenue that the Government collects is determined at the cash register, the Government collects a lot of the revenue before it gets to the cash register.

“Business-to-business transitions, wherever business are collecting and paying VAT along the chain, they are contributing to the final collection, and it avoids the potential for leakages at the final point. Having those structures is what strengthens the compliance system for VAT. That’s very critical.”

Mr Rolle added: “A sales tax structure ultimately requires a lot more resources and energy in terms of the administration, and it is much more prone to abuse than a system where you build up a lot more record keeping on which you can do audits. The business-to-business transactions in VAT contribute tremendously to the compliance and enforcement.”

Kevin D. Seymour, a senior Grand Bahama Chamber of Commerce executive, told Tribune Business recently that besides likely contravening the Hawksbill Creek Agreement (HCA), the proposal to levy VAT on business-to-business services transactions would create unnecessary administrative costs for both the Government and private sector - with no financial gain for either.

This, he explained, was because GBPA licensees would be able to either ‘reclaim’ the VAT paid on ‘business-to-business’ services transactions, or ‘net it off’ against the VAT consumers paid on their outputs, because it is a levy on their inputs.

Because of this, and with VAT only paid by the end-consumer, Mr Seymour said the revenue benefits to the Government from taxing services transactions between GBPA licensees would be negligible.

And, with Freeport’s manufacturing sector making it the Bahamas’ exporting hub, the Government might even lose money, as exporters - ‘zero-rated’ for VAT purposes - will still be able to claim ‘refunds’ for taxes paid on their inputs, while paying nothing on their outputs.