Wednesday, October 9, 2013

“I don’t have any trepidation of doom and gloom” about the implementation of Value Added Tax (VAT) in The Bahamas

Lawyer: I Don't Fear Vat.. It'll Be A Boost

Tribune Business Editor
Nassau, The Bahamas

A former Bahamas Bar Association president yesterday predicted that Value-Added Tax (VAT) would “boost” the legal profession, and said: “I don’t have any trepidation of doom and gloom.”
Providing something of an antidote to the general mood on uncertainty surrounding the Government’s tax reform plans, Wayne Munroe said VAT’s implementation would create a whole new area of work for attorneys - revenue and tax law.
The Munroe & Associates principal told this newspaper that employment in the legal profession might also increase, as many attorneys who currently lacked ‘back office’ accounting systems would likely have to hire extra persons to track, and capture, the VAT due to the Government.
Since the Government’s VAT ‘White Paper’ does not treat legal services as ‘exempt’ or ‘zero rated’, Bahamian law firms and attorneys - most of whom generate over $100,000 in annual turnover - will have to add a 15 per cent levy to their client billings and remit this to the Central Revenue Agency, minus the tax paid on their inputs.
Asked whether VAT’s introduction might result in reduced demand for legal services, and a loss of business, Mr Munroe suggested it would not.
He likened legal services to tobacco and alcohol, implying it was a product many clients could not do without, meaning there was an ‘inelastic demand’ and tax increases would make little difference to this.
And, with over 1,000 licensed attorneys in the Bahamas and multiple law firms, Mr Munroe said there was enough competition in the market to keep prices down and dictate how much of the VAT was ‘absorbed’ by the profession.
The former Bar president also described the Free National Movement’s (FNM) opposition to VAT as “laughable”, given that the party had previously gone on record as saying it would have implemented the tax had it been re-elected in 2012.
Mr Munroe added that what was missing from the VAT discussion was a debate on the ‘size of government’ that the Bahamas needed, as this determined the level of taxation and revenues required to fund it.
Arguing that he “can’t imagine” VAT’s impact on the Bahamas would be different from that in the UK, Mr Munroe told Tribune Business that one area he studied while at university was revenue and taxation law.
“It’s going to provide a boost to the legal profession,” Mr Munroe told Tribune Business of VAT’s implementation. “If you look at other jurisdictions, there’s a bunch of cases around VAT.
“We have very few areas of revenue law here to be explored by attorneys. Now there will be cases of people accused of VAT fraud; collecting VAT and not paying it over; and issues of interpretation of the legislation that is passed and introduced.
“It may provide a benefit to the legal profession......”
Accountants are the other profession likely to experience an upsurge in work with VAT’s arrival, and Mr Munroe hinted that both they and attorneys might also see the creation of another new business area - advising clients on tax minimisation, or ways they can legally reduce their tax burden.
And he added: “It may cause an increase in employment for those lawyers that do not have proper administration systems.
“If they’re going to deal with VAT, they have to have persons to administer the system. There will be an increase in the back office to deal with the administrative burden of accounting for the VAT regime.
“Some lawyers may have no one to day. It should create more work, and have an employment stimulus effect in the legal profession.”
Tribune Business sources have suggested one major query that attorneys have over VAT is whether it will have to be levied on billings charged to foreign clients, with some believing this does not happen in the UK.
Given that the Government’s philosophy is that VAT is levied in the jurisdiction where the product/service is consumed, and that such legal services were consumed in the Bahamas, it seems likely that foreign clients will have to pay VAT.
Another issue is that the price increases caused by adding 15 per cent VAT to legal billings may cause lower and middle income Bahamian clients to exit the market.
This would be especially concerning on land and real estate purchases, as it would expose Bahamians to deals where - if there was no title search by an attorney - they might acquire properties with bad title.
Mr Munroe, though, said it was unclear whether VAT would increase the cost of legal services, given that the Bahamian market was intensely competitive.
“The market will determine how much of the increase caused by VAT will be passed on,” he told Tribune Business. “I don’t have any trepidation of doom and gloom.”
Mr Munroe said what was missing from the VAT discussion was an “ideological” debate on the size of government and welfare state that was desirable in the Bahamas.
Since all three political parties backed the notion of some form of welfare state, he added that “some form of taxation” was necessary to finance it.
The issue then became one of form and alternatives to VAT, and Mr Munroe said he had only heard income tax being mentioned, which “comes with its own problems”.
“On balance, as a country we have to stop opposing and opposing things,” he said. “It’s laughable that the FNM is opposing VAT when it came out in support of it in government.
“We have to get past this thing. We seem to have a system where we have to oppose and oppose, and that’s not the Westminster system as I know it.”
October 09, 2013