The government has been applauded for being "very smart" in its decision to simplify the administration of value-added tax (VAT) for businesses in newly-tabled legislation, having eased filing and accounting requirements and the level of exemptions of goods and services.
Chairman of the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) and Co-chair of the Coalition for Responsible Taxation Robert Myers told Guardian Business he is "very encouraged" by what he had heard of the adjustments made by the government to the Value-Added Tax Bill 2014, tabled in Parliament yesterday.
"It sounds good. It sounds like they've listened, and I'm very encouraged by what I've heard. From what I can tell it's headed in the right direction," said Myers.
With regard to the simpler filing requirements, Myers added: "This was a big part of what we were saying. The simpler you make this - and this is the big issue - what happens is the more compliance you have. You have less tax cheats.
"So the real bonus there is that it's not so hard for the private sector and it's not so hard for the government to administer. The simplicity makes it easier and cheaper and creates greater compliance for everyone, and with a lower rate you need that compliance.
"I think it's very smart of them to have taken that advice."
Finally tabling the bill, which will pave the way for the introduction of a new system of taxation for The Bahamas in January 2015, Minister of State for Finance Michael Halkitis said yesterday that the bill "sets out a solid world class policy and administrative framework for fiscal reform".
This, he said, is one "that would be successful in moving our nation to a system of taxation that is both economically efficient and adequate to service the needs of modern government and to promote economic growth and prosperity."
He again defended the decision to pursue a VAT, pointing out that advice received by the government indicated that it would have the least detrimental impact on the economy among the various forms of taxation as the government moves to overhaul its currently outdated tax model and replace it with one that captures a wider base of economic activity.
Exemptions
The bill to a large extent follows what had been presaged by the government, including a "lower rate, fewer exemptions" model. No goods will be exempted from VAT, while a smaller list of services will be exempt. These include financial services covering all forms of lending and savings products issued by banks, insurance companies and other financial services; sales and rentals of dwellings; education services, specifically tuition; public, but not private, healthcare; day care; care facilities for the indigent and infirm; religious services; services by charitable organizations and government services connected with taxable activities. Notably, utilities such as electricity will not be exempt from VAT, and neither will general and medical insurance.
Following on from its commitment to lower a small set of tariffs come the introduction of VAT in 2015, government tabled a Tariff Amendment Bill that reduces duty on a number of items come January 1, in some cases to a lower rate and in some cases to zero. These items, listed in documents already posted to the government's website, include jewelry, apparel, certain food items, construction materials, machinery and appliances such as refrigerators and stoves.
Filing requirements
Significantly, the new bill has been adjusted in a number of significant ways, which should ease the administrative and cost burden on the private sector. The final version of the legislation has markedly been tweaked to take into account the advice of New Zealand VAT experts Dr. Don Brash and John Shewan in a variety of areas.
These include having less frequent filing requirements than the initial proposed monthly filing for all registrants. Under the new bill, businesses with annual taxable sales over $5 million will file monthly, and those with sales exceeding $400,000 will file quarterly; those under the $400,000 threshold but over the $100,000 registration threshold will file semi-annually.
The former draft of the bill called for accrual accounting for VAT. The newer version, per the New Zealanders' advice, now calls for a less complex, cash-based accounting system. This change, Myers said, has made the chamber "very happy".
"It will make it a lot easier. They are not making any less money; they are just cutting all of their administrative costs," he said.
Besides being a more simple form of accounting, Halkitis said that this should eliminate "working capital concerns over the treatment of bad debt". Also with respect to bad debt, the bill includes provisions which should make receiving refunds on VAT paid on unpaid invoices less complex.
The government will also introduce a "simplified VAT return", using a flat rate scheme for those with turnover under $400,000. In this case, VAT will be calculated as a fixed percent of cash sales, with no need to account for input tax paid.
Meanwhile, groups of companies will be able to register, eliminating the need to recognize VAT on intra-company transactions.
Task force
Halkitis also said that the government will, as earlier anticipated, appoint a three person task force to educate the private sector on the tax, just as New Zealand brought on board private sector representatives to spearhead its VAT education effort. These individuals have yet to be identified.
Myers said that notwithstanding the fact that the government has taken into consideration many of the recommendations of the coalition with respect to the legislation, the coalition is continuing its campaign on tax and fiscal reform with a view to ensuring the government follows through on other commitments key to ensuring the "overall objective" of debt and deficit reduction is achieved.
"Tax reform is only one aspect of what has to happen to get back on the road to fiscal recovery. So it's great that we've got that done, but what's critical is fiscal reform, energy reform; all of those things are of critical importance."
Another prominent businessman, speaking on condition of anonymity, was more critical of the legislation tabled overall, in particular the decision to keep most duty rates where they currently stand.
"If there is no duty reduction, then there will be no 'buy in' from the private sector. The private sector has made it clear: lower duties vis a vis VAT rate, put in place a Freedom of Information Act and engage in genuine fiscal reform. Without these three demands being worked into VAT reform, there is no reason for the private sector to support the government's position on VAT. Chaos will result. The deficit and debt will get worse."
The government and the opposition committed to going into its summer break once it has finished dealing with several sets of bills, including value-added tax.

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