By NEIL HARTNELL
Tribune Business Editor
A top Ministry of Finance official says the principle behind Facebook levying VAT on Bahamas-linked advertisements is more important than any revenue that will be earned by the Government.
Marlon Johnson, the Ministry of Finance's acting financial secretary, confirmed to Tribune Business that the monies derived from Facebook and its affiliate, Instagram, collecting and remitting VAT charged on fees for placing advertisements on their social media platforms "isn't going to be substantial".
But with COVID-19 accelerating the trend towards digital and online transactions, Mr Johnson said it was far more critical to establish the principle that such commercial interactions must be taxed in the jurisdiction where they are consumed.
He spoke out after Facebook, in a notice that circulated widely among Bahamians on social media after it was posted to the social media platform's Facebook for Business page, confirmed it will start levying, collecting and remitting VAT at 12 percent on all fees charged for advertisements involving the sale of goods and services in this nation.
"Beginning 1 November, 2020, Facebook ads in The Bahamas will be subject to a Value-Added Tax (VAT) at the applicable local tax rate. This applies to advertisers whose 'Sold To' country of their business or personal address is set to The Bahamas," Facebook said.
"Add your taxpayer identification number (TIN) in the Ad Accounts Settings of Ads Manager. You don't have to enter a TIN. However, if you're registered for VAT and provide your TIN, your TIN will show up on your ads receipts. This may help you recover any VAT you paid to Bahamian tax authorities if you're a VAT registered business in The Bahamas.
"VAT is added whenever you're charged for your ads regardless of whether you're purchasing Facebook ads for business or personal purposes. Because VAT is added on top of charges, you won't reach your billing threshold faster, but you may be charged more than your billing threshold amount," it continued.
"If you pay for Facebook ads with a manual payment method, VAT is accounted for at the applicable rate when your ad account is funded to determine the total balance available."
Mr Johnson said Facebook's VAT arrangement with The Bahamas was similar to taxation-related agreements it had reached with other countries. He added that it was not dissimilar to the partnership between the Government, via the Ministry of Tourism, and Airbnb where the latter has agreed to levy, collect and remit VAT on all Bahamian vacation rental properties marketed via its website.
Asserting that the Ministry of Finance was seeking to get ahead of any challenges posed by the digital economy, and ensure due taxes were collected on all goods and services sold in The Bahamas, Mr Johnson said: "Over the last two Budget cycles we made clarifications in the law just to confirm that all goods and services rendered in the country are subject to VAT.
"What we have been doing is that the team has been contacting various electronic services providers to bring this to their attention, and what you see is a culmination of that."
The acting financial secretary indicated that the Ministry of Finance was seeking to close-off any tax avoidance and evasion loopholes stemming from the transition to a more digital-driven economy, and any belief that payments to the Public Treasury could be circumvented by going online.
"The context is this," Mr Johnson told Tribune Business. "It [the Facebook revenues] isn't going to be substantial. We don't anticipate that. It will be a modest source. But that isn't really the point.
"The point is that whenever goods and services are rendered in the country they have to be subject to VAT. As more and more of the economy is generated online, and as the digital economy continues to evolve, more and more transactions will be rendered online and be rendered from anywhere.
"But if you are rendering services inside The Bahamas, or they're being consumed in the jurisdiction, it's subject to VAT. I think the global standard has been established that digital transactions are taxed in the jurisdiction where they are consumed."
Suggesting that the Ministry of Finance was seeking to keep pace with the digital economy's evolution, Mr Johnson added: "If we continue to get better at these things then they really won't become an issue.
"It [the Facebook arrangement] speaks to the fact we have in place the protocols, have an understanding of how it works, and will remain on top of it. To the extent the Government remains on top of it, it won't become an issue."