Financial Secretary John Rolle yesterday revealed that all local value-added tax (VAT) registrants with turnovers below $1 million are automatically eligible to handle their VAT returns on a cash accounting scheme in a move to simplify the filing process for smaller businesses.
Speaking at yesterday's VAT Private Sector Education Task Force seminar on filing and payments of returns, Rolle said that although registrants below the $1 million threshold were previously able to apply to use the cash scheme, all such businesses were automatically switched to a cash accounting system, which he argued was considerably simpler than the accrual accounting method used by larger businesses.
"All of those small businesses that are under $1 million in annual sales they are eligible to do their VAT accounting on a cash basis, and what we're saying today is that we're reversing that process because a lot of people may not even know that the privilege exists. If you're $1 million or less you're on a cash basis for VAT.
"What the cash basis will mean for you is that you will only pay VAT on sales or revenues that you've collected from your customers and you will get VAT credit based upon the bills that you've actually paid," said Rolle.
The cash accounting scheme allows roughly 80 percent of the country's VAT registrants to account for VAT on their sales on the basis of payments received, rather than on tax invoices issued by the registrant. This differs from the accrual method that requires registrants to account for VAT on their sales when issuing a VAT invoice, even if their customer has yet to pay them.
While the scheme does not provide a tax advantage for smaller businesses, it aims to assist registrants with their cash flow by allowing registrants to defer payment to the comptroller until they have collected it from their customer.
Rolle said that small business could still apply to use the accrual account method, but he hoped that the cash alternative would allow small businesses to quickly get a feel for how much they would pay the government during each filing period by looking at a company's bank balance.
The government's VAT guidance on VAT accounting methods notes that the advantage of the accrual method is that registrants may claim for VAT incurred on purchases and imports before making payment, with the exception of secondhand goods. However, the disadvantage is that registrants must account for VAT on supplies they have made before actually receiving payment.
New Zealand VAT Consultant Don Brash told Guardian Business earlier this month that he hoped the government would embrace the cash accounting scheme as a way of simplifying the filing and payment processes for small businesses.
Bahamas Chamber of Commerce and Employers Confederation (BCCEC) CEO Edison Sumner welcomed the move yesterday, calling it an "excellent system" for small businesses looking to lower their accounting costs.
"It's a simple process for those businesses to be able to take advantage of the cash accounting system. It simplifies doing business, it simplifies the payments to the government and the remittance of funds to the government for the tax liability," said Sumner.
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