In order to alleviate fears over difficulties in adjusting prices on certain goods when both new duty rates and the value-added tax (VAT) are introduced in January 2015, the government is touting something called a "virtual warehouse" system, but businesses must notify the government within the next two weeks that they intend to use the system.
At the Public Treasury Building on Thursday, UK-based tax consultant Dean Wootten explained the new system to lawyers, tourism officials, accountants and members of the retail community who have spent the last few days at "VAT school".
Virtual warehouse system
For those using the virtual warehouse, goods purchased between November 1, 2013 and December 31, 2014 will not incur duty on entry. These goods when sold will attract the new duty rates, which will be due to the government along with the appropriate VAT and a summary of the year-end inventory before the end of February 2015.
Wootten stressed the shortness of the time businesses have to notify the government of their intent to use the virtual warehouse system.
In order to be able to participate, businesses must notify the government of their intent to do so by September 30, 2014.
"That [deadline] is too tight, but I'm sure it will be relaxed," Wootten said.
Participation in the system will depend on a number of criteria, highlights of which include a requirement to provide a detailed summary of inventory held as at December 31, 2014; a requirement that this inventory be verified by a Bahamas Institute of Chartered Accountants (BICA) licensed accountant whose name must be given to the government at the same time as notification of intent to use the system and a requirement that access be granted to the comptroller or an agent thereof.
If the goods are sold before January 2015, the old duty rates will apply.
Financial Secretary John Rolle acknowledged those concerns.
"The approach that the Ministry of Finance is taking... is one where there is some leniency... [for] businesses through the month of January," he said.
"There may be some hiccups in terms of not getting all of the old price stickers off, but what we're saying is that businesses should begin in the month leading up to January [to] begin to display what those VAT-inclusive prices will be"
Meanwhile, Wootten highlighted another feature of the VAT regime. The flat rate scheme is intended to lessen the administrative burden on businesses with a taxable turnover of $400,000 or less, and who do not keep particularly detailed records. To be clear, there is no particular financial benefit to using the flat rate scheme. The potential does exist, however, for significant savings in administrative costs.

Flat rate scheme
The flat rate scheme allows businesses like small retail outlets that qualify to simply apply a flat net rate of VAT of 4.5 percent to their turnover to calculate the amount of VAT to be paid to the comptroller.
The scheme is outlined in version two of the government's VAT training manual, issued on September 11.
"The flat rate scheme is most beneficial to those that do not keep sufficiently detailed accounts. There is still a requirement to keep the necessary documentation as outlined in the VAT Bill to support your sales figures, but you do not need to keep an accurate record of your purchases/expenses," the manual advises.
How is the scheme different from the regular regime?
Normally, a business will charge 7.5 percent on the net price for the goods or service it sells, which is what the business then owes to the comptroller as output tax. The business will also incur VAT on certain purchases and expenses. Each VAT period, a business will offset its input tax - the amount of VAT paid on goods and services from its suppliers, where VAT has been charged - against its output tax, and pay the balance to the comptroller.
The VAT period is different for businesses of different size. Those with annual turnover of more than $5 million must submit a monthly VAT return. Businesses with turnover of between $400,000 and $5 million must submit quarterly VAT returns. Businesses with a turnover of $400,000 or less - such as those on the scheme - are required to file a semiannual VAT return.
Businesses on the flat rate scheme do not have to do that calculation every VAT period, but need only take the amount of turnover for the VAT period and multiply it by the flat rate of 4.5 percent. That rate is considered the average rate that a business would pay if they had used their records to determine the amount of VAT payable to the comptroller each VAT period. Therefore, those businesses might make a marginal gain or loss. Any savings they realize from being on the scheme would be mostly from administrative savings.
Once in, a business must stay in the scheme for two years, and any business with a turnover that exceeds $400,000 must leave the scheme.
Wootten noted that VAT in the UK is 20 percent, and that VAT in Europe goes up as high as 27 percent. VAT in the UK goes back into schools, roads and infrastructure.
"That's how we raise taxes to help the people in the UK, and that's pretty much what should be happening over here," Wootten said.
"It's a way of raising taxes to meet the needs of what the government need to do."
He acknowledged that despite this encomium, VAT is an unpopular tax.
"It is unpopular, but it's necessary, because it's how we run the government."

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