How would VAT impact the construction sector

Fri, Mar 8th 2013, 10:57 AM

Dear Editor, In February of this year, the prime minister of the Commonwealth of The Bahamas addressed Parliament, and the Bahamian public for that matter, as he introduced the conversation regarding the possible change in our current tax structure. He introduced the discussion of value added tax or VAT. It is no secret that there is currently a white paper on VAT in circulation for the public to fully verse themselves on before dismissing VAT as a farfetched idea that should have been shelved with similar novelties of previous administrations.

As I am sure many Bahamians have done, I have read through the 16-page document and have settled upon a position in response to the possibility of VAT. Among the many issues that need to be addressed in light of the conversation regarding VAT is the cost that will have to be added to all businesses in their accounting departments to keep up with the requirements of VAT. As noted in the white paper the latest statistical numbers released by the Department of Statistics suggest that approximately 80 percent of all businesses in The Bahamas fall within the category of small business with an annual turnover of less than $50,000.

Furthermore, many of these small companies operate from homes or home-based offices and regularly do not have more than a few employees. Needless to say there is the obvious question of how these companies will be able to afford to hire bookkeepers or possibly accountants? Let us consider the construction industry, for example. What we know is that most construction businesses, who consider themselves contractors, only have business licenses to operate a construction company. A very large number of these persons, who currently operate trading as XYZ Construction, operate from home-based businesses that allow them to keep their overhead relatively low in an attempt to remain competitive.

Competitiveness is very important given the fact that the construction industry is currently unregulated. What this means is that competition is fierce and any day your biggest competitor can enter the market. What this also means is that the consumer generally receives the benefit of reduced costs when service is offered. Surprisingly, while there is a general disdain for many in the construction industry due to several factors including lack of trust, lack of technical training and business development training, the fact of the matter is that Bahamians are paying less for the services they are currently receiving than they could be paying.

For example, while many Bahamians argue that they believe that the cost of construction is high in The Bahamas, they would be surprised to learn that the average salary of a carpenter in the U.S. is more than three times that of what a carpenter earns in The Bahamas. Similarly, the costs that businesses pay in the U.S. are much higher based on the requirement of insurance and other expenses that their government demands. The reality might soon be the introduction of VAT might increase costs, but even so more increases still may need to follow?

Consider the fact that The Bahamas is actively seeking to become a full member of the World Trade Organization in 2014. Further strengthening in the construction sector will be needed. The conversation must be had with respect to regulation of the construction sector. However, time is running out for preparation in this regard. The questions regarding the free movement of persons will undoubtedly affect how many companies continue to do business in The Bahamas. In advance of full inclusion in WTO, even more consideration will need to be given to the growing number of illegal participants in the construction industry who currently and quite frankly actively compete with legitimate businesses.

Many of these persons may not own businesses so they won't pay VAT or any other business or service tax for that matter. While I am certainly not making an argument against VAT, far from it, I am only stating my position that VAT will not fix this issue with its enactment. These issues must be addressed, and can only be addressed, through legislation. I would invite every stakeholder to advance this conversation as members of the public. The major concern that all construction businesses should have is that if the government does address the issue of regulating the construction sector, the introduction of VAT might become as discriminatory a policy as the current gaming act which gives more advantages to non-residents than its own citizens. - Leonard D. Sands, vice president, Bahamian Contractors Association

Click here to read more at The Nassau Guardian

 Sponsored Ads