Advertisers, marketers and public relations firms have joined forces to voice their fears that they are uniquely vulnerable to seeing large portions of the work they currently rely upon to sustain themselves outsourced to foreign companies if their services are subject to value-added tax (VAT).
After almost two decades of dormancy, an industry association representing firms in the sector has been reinvigorated primarily to press the government on its VAT concerns.
Meeting with the Ministry of Finance yesterday in its first official consultation, BAAM - the Bahamas Association of Advertisers and Marketers - now represents around 15 small and medium-sized enterprises throughout The Bahamas.
Speaking with Guardian Business after that meeting, John Rolle, financial secretary in the Ministry of Finance, said the concerns of the sector to some extent mirror those of many service providers - that the application of VAT to their bills will encourage outsourcing of work that can largely be done "over the Internet".
Rolle said that the government could seek to discourage outsourcing by monitoring payments made by Bahamas-based companies to firms abroad.
This might potentially be done, said Rolle, via closer inspection of records kept by The Central Bank of The Bahamas of who is seeking foreign exchange to pay foreign invoices.
Indi Johnson, vice-president at AdWorks, said that two major concerns of the sector are how applying VAT to their sales will diminish their ability to attract business within The Bahamas, and the fact that the presently proposed monthly filing system would create cash flow challenges for most companies in the association, given the typical nature of their billing cycle.
"Our business is so totally digital that anyone can do it anywhere. We are already competing with offshore companies. VAT would potentially put us at a greater disadvantage and there is no way to track if people are going abroad to buy those services," said Johnson.
In order to address that concern, Johnson proposed on behalf of BAAM that the government should consider exempting "intangibles" supplied by advertisers, marketers and PR firms from VAT - those capable of being electronically transmitted - while keeping VAT on "tangible" products such as publicity materials, brochures and other such items.
Meanwhile, Guardian Business understands it was also proposed that the sector, or services in general, be subject to a quarterly VAT filing requirement.
Another association member, speaking on condition of anonymity, said that if Bahamian firms are able to buy similar services without VAT applied from abroad, it will create major challenges for local companies.
"Adding VAT to our costs without capturing the purchase of similar services commissioned or secured from outside The Bahamas could cause hardship for those firms and agencies who employ professionals, pay sizeable salaries, maintain businesses, pay rent or make mortgage payments, pay utilities, pay NIB, insurance, buy supplies locally, retain IT companies, and more," said the BAAM member.
Industry 'peculiarities' Johnson said that BAAM's objective is to ensure that the government considers the peculiarities of service industries, advertising and marketing firms in particular, when implementing VAT.
"We look forward to continued discourse with the Ministry of Finance to achieve that objective," she said yesterday.
In an interview with Guardian Business following the meeting with BAAM representatives, Rolle said that while the primary goal of the government would be to ensure it collects as much revenue as it can under the VAT regime, if the government is able to tax any payments made to companies abroad, this could discourage firms from the temptation to out-source.
"We know that there is information out there that we can exploit, so we are looking at ways to get at that information," said Rolle. Referring to the possibility of using data gathered by the Central Bank on international payments, Rolle added:
"It's an example of an avenue to get information on how we can track foreign payments. We believe that there are ways, and the information already exists, to monitor those transactions. So we just have to work out what protocols would be necessary in order to do that."
He said that the taxation of services that can be applied across borders creates similar challenges wherever it occurs.
"It's an issue that would not be unique to the Bahamas, it's an issue on the whole where you would have taxes on services that can be supplied across borders; governments have to make the extra effort to collect the taxes owed."
The Financial Secretary noted that the perceived threat from foreign firms could be reduced if VAT registrants consider that any VAT that they may seek to avoid paying on inputs into their business ultimately results in their firm having less "input VAT" to offset against VAT collected from customers when remitting their returns to the government.
Once this is understood, Rolle added that the government may seek to "zero in" on those firms who sell VAT exempt supplies, given that they would not be allowed to offset VAT paid on inputs, and therefore would have more incentive to try to avoid paying VAT on their inputs by shopping for services abroad.
Turning to BAAM's suggestion of a quarterly filing period for service providers, Rolle said his ministry would "look at it very carefully, because there are advantage and disadvantages to doing that."
"So I wouldn't say that's necessarily going to happen, but it's an idea that's been put out there by different sectors for different reasons and that will be carefully reflected upon."
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