Monday, September 15, 2014

The need for a properly-structured Value-Added Tax (VAT) education programme in The Bahamas

'Confusion' Between Vat Law, Guidance Must Be Eliminated

Tribune Business Editor
Nassau, The Bahamas

A Tax Coalition co-chair has called for apparent differences between the Value-Added Tax (VAT) legislation and ‘guidance notes’ to be “resolved”, agreeing that there was “confusion between the two”.

Robert Myers told Tribune Business there were numerous “loose ends” remaining in relation to VAT, and that he had called for another meeting of the joint government-private sector advisory committee to tackle concerns that had been “batted back and forth”.

Agreeing that implementation was unlikely to be seamless because the Government was trying to “fast track” the process, Mr Myers said his call for the Christie administration to stop throwing VAT “information hand grenades” had been validated by last week’s events.

John Rolle, the Ministry of Finance’s financial secretary, caused temporary turmoil in Freeport’s business community when he inadvertently suggested 7.5 per cent VAT would be levied on the city’s ‘bonded goods’ regime - a mistake later retracted and corrected.

Mr Myers, though, said this proved the need for a properly-structured VAT education programme, otherwise the risk remained that mistakes and misunderstandings might cause “widespread panic”.

One area that needs to be tightened is ensuring the Ministry of Finance’s VAT ‘guidance notes’ conform with what is in the legislation and regulations.

The Government has already had to issue one clarification here in relation to pre-existing contracts, confirming that the VAT Act requires that the service/goods recipient at all times will pay the tax - not the provider/vendor.

Yet the VAT ‘guidance notes’ appeared to take the opposite position on pre-existing business and commercial rental contracts, stating that if no agreement could be reached with the recipient/tenant to pay the tax post-January 1, the vendor/landlord would have to ‘eat’ it as the Government would assume the tax is contained in the contract sum.

“That’s an area we’re going to have to go through,” Mr Myers told Tribune Business of potential discrepancies between the VAT legislation/regulations and ‘guidance notes’.

“There clearly is a gap. There clearly is some confusion between the two. We need to get that resolved. There’s a lot of loose ends.”

The Coalition for Responsible Taxation co-chairman, meanwhile, said last week’s mistakes in Freeport had “validated” his call for a structured VAT education process.

“It only strengthens what I said, which is that we’ve got to get a process for doing this, and get these training modules out so people are clear,” he told Tribune Business.

“You can see there’s a definite need to calm the process when high ranking officials don’t get it right, and get something that’s digestible for the public and private sector. We don’t want to create widespread panic. It’s got to be a calm process.

“If that means slowing it down to get it right, let’s do so. Let’s make sure what we do is done in a calm, responsible and deliberate way. We need to do it in a responsible, deliberate and calm fashion. It’s important that everyone understands, is comfortable and no one is panicked.”

Mr Myers said he was now pushing the Government to hold a second meeting of the joint private-public sector VAT advisory committee, adding: “I’m hoping to pull that off, because we need to hit them [the Government] with a list and get some answers on stuff that’s kind of been batted back and forth.”

He conceded, though, that VAT implementation on January 1 was likely to be far from smooth given the haste with which the Government was seeking to move on tax reform.

Mr Myers said New Zealand, whose experience the Bahamas’ has drawn on a great deal, used a 14-18 month gap between their VAT legislation’s public release and implementation to iron out any problems.

The Bahamas, by contrast, was attempting to do the same in less than six months, though the Government would argue that the initial draft’s November 2013 release has given everyone 13-14 months to prepare.

“It’s going to be a bit of a mess because we’re trying to fast track the process,” Mr Myers told Tribune Business. “We’re trying to do it in how many months? You can’t expect to have a seamless process when you’re trying to fast track something like this.

“There’s going to be issues. The more we can get ahead of it and cut off confusion by vetting documents, and only then get them out to the private sector, you will have a lot less noise.”

He added: “Clearly there’s a lot of confusion at this point, and it’s not going to stop as long as we don’t follow the process. We’ve got to be responsible in the way we do that.

“First vet the legislation, regulations and guidance notes, clear as much of the confusion up as possible, then get thye education platform launched and get support teams out there, hitting each of the sectors.

Mr Myers suggested that the education process start with the Bahamas’ largest businesses, who were expected to be the biggest VAT collectors, “and then work down from there”.

He conceded that the VAT education process was “still very erratic” and “a bit disjointed in my humble opinion. I expect that to clear up; I hope it clears up significantly over the next couple of weeks or months”.

He warned that the Bahamas, both the Government and private sector, “can’t afford” for VAT education to fail because it would automatically mean reduced compliance. And less compliance will result in an increased VAT rate, and new and increased taxes elsewhere.

September 15, 2014