The Tribune

• Only at 75% of target with two months left

• Miss conceded but Gov’t ‘compensating’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday conceded that VAT revenues were likely to under-shoot their 2022-2023 target but voiced confidence that tougher enforcement will keep them on track in the current fiscal year.

Simon Wilson, the financial secretary, told Tribune Business that the Government’s tax and revenue agencies are targeting the Family Islands, marine industry, tourism and services sector with more stringent compliance measures to ensure VAT hits its $1.591bn target for the 2023-2024 fiscal year.

That goal, though, could be tough to reach given that VAT collections are on pace to fall short of their 2022-2023 full-year target. The Government’s monthly fiscal snapshot for April 2023, released last week, reveals that VAT revenues for the first ten months of the fiscal year at $1.063bn were equivalent to just 75.3 percent of their $1.412bn full-year target.

With just two months of the 2022-2023 fiscal year left, that near-25 percent or $350m gap appears to be to steep to bridge. The 2022 comparative period shows that VAT collections for May and June stood at $94.5m and $85.2m, respectively, representing a collective $179.7m. A repeat performance would take full-year VAT revenues to just over $1.242bn for the 2022-2023 full-year, some $170m short of target.

Several sources yesterday highlighted the likely shortfall, given that VAT was projected to account for almost 50 percent or half the Government’s $2.857bn total revenues in 2022-2023. They noted that, despite this under-shoot, the VAT revenue projection is increasing by almost $180m year-over-year to $1.591bn for the current 2023-2024 fiscal year, thus raising questions as to how the Government will hit this hiked target.

The 2023-2024 fiscal year is shaping up as critical for The Bahamas given that achieving the forecast $131.2m fiscal deficit is key to placing the Government on track to deliver the projected Budget surplus, where total revenue or income exceeds spending, the following year. Hitting these targets is also vital to retaining, and sustaining, investor and capital markets confidence both in The Bahamas and abroad.

Mr Wilson, while conceding that VAT revenues will likely miss their 2022-2023 full year target, yesterday pointed out that revenue performance in other areas had “compensated” for this and the Government was still on a path to achieve both its total revenue and revised $520.6m deficit for the 12 months to end-June 2023. And, while acknowledging the 2023-2024 deficit target is “ambitious”, nothing has emerged to-date to show it is not achievable.

He added that the tax authorities’ compliance and enforcement efforts place the higher 2023-2024 VAT target within reach. “I will say yes,” Mr Wilson replied, when asked by this newspaper if VAT revenues will miss their 2022-2023 target, “but we compensate for that with overall performance of total taxation.” Total revenues and total tax revenue, at $2.356bn and $2.079bn, respectively, stood at 82.4 percent and 81.9 percent of full-year target, and appear much more in reach.

Breaking VAT down into three components, namely the 10 percent levy on goods, services and real estate transactions, Mr Wilson said the latter was by far the most difficult to forecast due to uncertainty over whether deals would be completed and when they will be presented for stamping and payment of due taxes.

“The timing of the transaction we cannot control,” he explained. “We can see the approvals from the Bahamas Investment Authority (BIA) [for foreign purchases] and so forth but the timing of the transaction, and when they’re brought forward for stamping, we cannot control and that impacts VAT forecasting more than anything else.

“They may not happen at all, and they may have approval but do not close in the time you think they’re going to close. Especially with bigger transactions, higher value transactions, it may drag on for six months or even a year.”

Explaining why he remains optimistic that the Department of Inland Revenue (DIR) will hit its 2023-2023 targets, Mr Wilson said: “We have a four-pronged VAT strategy this year.” This, though, does not involve VAT levied on domestic goods sales, the financial secretary saying “we have no challenges with that” due to the electronic ability to track every sale or resale of a product.

“Where we have a challenge is VAT on services, especially in the tourism sector,” he added, pointing particularly to the marine and maritime sectors, where much attention has been focused on collecting due VAT on foreign yacht charters and other elements.

“We have a challenge with the Family Islands when we look at the amount of activity,” Mr Wilson disclosed. “When we look, those are areas where we think we can make up these numbers. VAT on services, the Family Islands and tourism. We feel we can get a lot more from compliance, better enforcement and better education of the taxpayer.

“We’ve seen significant improvement early on. Everybody heard about what happened in Harbour Island previously. Those taxpayers who were non-compliant are becoming compliant. We have more work to do on Harbour Island. We’ve done some work in Bimini, we’re doing some work in Abaco and doing some work in Long Island. Those are areas where there is significant under-reporting of VAT for whatever reason.

“We have to find them so we have to work every day, every week. We are actively monitoring, making some adjustments every week. We have to be on it, inspecting, doing things, following up and so forth. Most people want to comply. Once you educate them on what should be paid, they pay it. That’s the good thing.”

April saw the Government record its fourth consecutive small monthly surplus, with revenues exceeding spending by some $4.3m. This followed surpluses of $3.1m, $18.6m and $6.3m in January, February and March respectively, with the combined $30m-plus helping to control the deficit ahead of the end-June surge when multiple ministries, departments and agencies present bills for payment that the Ministry of Finance previously knew nothing about.

Describing the first four months of the calendar year as traditionally the richest for government revenue, given that it coincides with the peak winter tourism season, Business Licence fee payments, the bulk of real property tax payments and commercial vehicle licensing month, Mr Wilson said “that was the plan” to generate fiscal surpluses throughout that period.

“It was good that we stuck to the plan and it’s a good base going forward,” he added. “There’s more work to be done. We’ve seen good momentum in real property tax, we’ve seen good momentum on Business Licence fees. We have the hotel condo tax that will have its first full year, so we will see what happens. We have our Family Island strategy, we’re doing four islands and will go back, and we have our marine sector strategy that’s ongoing.”

While unable to provide figures, Mr Wilson said the Government finished 2022-2023 “close” to its full-year deficit target of $520.6m. At end-April, ten months into that fiscal period, it stood at $246m or 47.3 percent - less than half - the revised $520.6m target.

Looking forward to this year’s $131m deficit goal, he added: “The target for this fiscal year, the deficit target, is an ambitious target... but there’s nothing we’ve seen to say it’s not achievable. It’s certainly ambitious but we have to work towards it. If we get through the hurricane season OK, avoid any natural disasters, there’s nothing unforeseen in expenditure and we manage state-owned enterprises (SOEs) and really focus hard on revenue, it all becomes achievable.”