Bar president: 'Disrespectful' lack of VAT consultation

Share |

July 24, 2014

"Double taxation" of property transactions, lawyers going out of business over unpaid debts on which they will have to pay tax, and a lack of proper consultation with the government, are among the primary concerns of leading attorneys who have commented on the newly-related value-added tax (VAT) legislation.
Adrian White, chair of the Bahamas Bar Association's real estate committee, said VAT will be "tough" for many, creating an onerous financial situation for attorneys and buyers alike through adding an additional tax liability onto an already taxed property transactions, and requiring payment of tax to the government by attorneys prior to receipt of payment from clients.
"As a property buyer, you would be paying stamp tax (on land transactions) and VAT, because you are paying VAT on legal fees associated with the transaction as a service rendered," White said.
"A vendor could be looking at three taxes: one tax is real property which you should've dealt with before you sold property; one is stamp tax if you are splitting that cost, and another is VAT on legal fees."
Currently, stamp duty is levied at a rate of 10 percent on transactions valued over $100,000, eight percent on transactions between $50,000 to $100,000 in value, six percent on transactions of $20,000 to $50,000 and four percent on any property transaction of less than $20,000 in value.
White said the impact on the industry of adding VAT on legal services onto this cost is likely to be varied, with some attorneys likely having to "eat" the VAT by reducing their legal fee proportionately. On Wednesday, Minister of State for Finance Michael Halkitis, introduced the VAT Bill in Parliament, which is intended to bring the tax into place in January 2015 at a rate of 7.5 percent.
White said: "It will depend on the law practice and the demands of the market. You'll find some people who will pay their VAT on top of legal fees, because it's required by law, and you'll find instances where the market is too weak to enable a transaction to complete if there is VAT payable on top of the standard legal fee amount.
"We've already had enough difficulty getting what is supposed to be correct legal fee paid, and we've had for a number of years people complaining about people undercutting on legal fees and going below the standard rate. In a weaker market you may find that to make that deal happen an attorney could even consider accounting for VAT amount payable against their legal fee.
"It will be tough for a lot of people. They will have to consider reducing further their fees in order for a transaction to occur, or take the road where it cannot complete. It's certainly going to be problematic because we're in a unique market that has either bottomed out or is recovering."
White noted that given the demand for legal services and the supply, with a Bar made up of hundredss of attorneys, many lawyers are already challenged to run a profitable practice. The requirement to pay VAT on services that may have been sold and invoiced but not yet paid will make this more difficult.
Under the new VAT legislation, all businesses with turnover over $400,000 are required to account on an accrual basis, while those with less than this amount can account on a cash basis.
While cash accounting would take the VAT liability to be created at the point payment is received for goods or services sold, accrual accounting would take this to occur at the point the sales or purchase invoice is raised, irrespective of whether a payment has been made or received.
"When you add these other factors on, maybe not in any great percentage, but to some degree the ability for offices to stay open, particularly single practitioners or smaller firms, is something we'll see less of," added White.
White, like Bahamas Bar Association President Elsworth Johnson, noted that while the sector had sought to be consulted and have input into the drafting of VAT legislation, its push in this regard was not successful. Both explained that seminars organized by the BBA which Ministry of Finance officials had promised to attend saw those representatives cancel their attendance at the last minute.
Johnson said he views the application of VAT to legal fees for property transactions on top of stamp duty already applied as "double taxation".
He added: "We weren't consulted. We wanted to put our position on that and persons just didn't come. In my mind it was somewhat disrespectful. You may see the income and accounts receivable for a law firm being $3-4 million but we haven't actually got that. So how do you tax on something they haven't got? In addition, the way VAT is set up now there is concern that non fee-earning monies would be taxed. You may have monies on escrow, but you can't use that money."

Click here to read more at The Nassau Guardian

News date : 07/24/2014    Category : Business, Nassau Guardian Stories

Share |

 

Ads