By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Government’s tax collection chief yesterday voiced scepticism that fewer than 20 percent of businesses meet the VAT registration threshold, and demanded the private sector “be truthful”.
Shunda Strachan, the Department of Inland Revenue’s acting controller, said it will “this year be asking questions” amid suspicions that “most businesses don’t really report their true turnover” for Business Licence valuation purposes.
Speaking at the first Prime Minister’s Office media briefing for 2023, she said that out of nearly 50,000 companies with Business Licences “only about 9,000” - some 18 percent - meet the annual $100,000 turnover threshold that legally mandates they must register to collect and remit VAT to the Government.
Ms Strachan openly voiced doubts as to whether the remaining 40,000-plus Business Licence registrants all have annual turnovers below the $100,000 mark, saying: “I don’t know about that.” Calling for honesty, she pledged that the Department of Inland Revenue will take a keen interest in verifying the accuracy of gross turnover figures that all businesses - regardless of size and top-line revenue - must provide in less than three weeks’ time by January’s end.
Warning that the tax authorities will “say ‘hmmmm’” to the likes of liquor stores and fast-food restaurants reporting annual revenue below six figures, she added that the Department of Inland Revenue will be conducting both “desk” and field audits to verify turnover submissions, and request information such as monthly electricity bill payments to determine how active companies are.
Revealing that Business Licence fees collected for the 2021-2022 fiscal year were 9 percent below target, coming in at $91m as opposed to the $100m goal set by the Government as the economy emerged from the COVID-19 pandemic, Ms Strachan voiced optimism that the compliance crackdown will enable it to achieve this year’s $124m objective.
“What we’re finding is that most businesses don’t really report their true turnover,” Ms Strachan argued. “The challenge the Department of Inland Revenue is having is verifying what that is that turnover. Just under 50,000 businesses registered last year. We expect to have more than 50,000 businesses” registered in 2023.
Of the near-50,000 Business Licence fee paying companies from 2022, she added: “Only about 9,000 registered for VAT. That tells us we have more than 40,000 businesses saying they generate less than $100,000 a year. I don’t know about that. This year we’re going to be asking questions. We’re going to be having dialogue with businesses as they submit their applications.”
Giving a liquor store reporting annual turnover of $20,000, and a fast-food restaurant asserting a $40,000 top-line, as example, Ms Strachan added: “We’re definitely going to say ‘hmmm’ to that. We’re going to come back and ask you questions.”
Pointing out that companies with annual turnover of $100,000 or less were earning, on average, weekly revenues of less than $2,000 ($1,923) based on a 52-week year, the Inland Revenue chief added: “The majority of businesses say they generate less than $100,000 a year. The focus of the Department of Inland Revenue will be on verifying turnover. That will be the focus.
“We’re coming to you. What’s your utility bill like monthly? That gives us an idea. If you’re generating less than $2,000 a week, no way your light bill for the month will be $1,000 or $500. Certain questions give us an indication as to what direction your turnover is going. Be truthful about your turnover. If we can verify the turnover, we know we can meet the Government’s target for Business Licence.”
Some $14m in Business Licence fees have been collected for the first six months of the 2022-2023 fiscal year. However, Ms Strachan acknowledged that the “lion’s share” of these fees will be received in the run up to, and around, the March 31 deadline for when companies are legally obligated to make the payments.
“But, again, we need businesses to be truthful about the turnover you bring in,” she reiterated, warning that the Department of Inland Revenue has numerous data reference points it can use to check companies’ turnover submissions for accuracy. These include Customs and major wholesalers, which allow the tax authorities to assess how much an individual business is importing and purchasing locally. “We have ways to verify the numbers,” Ms Strachan said.
“If we have a suspicion that something is not right about your turnover, we perform an audit, whether that’s a desk audit or a field audit where we come to you. If we have doubts we’re going to verify, and penalties and enforcement will come after the fact. If could be we decide to garnish. It could be we do other things. The law allows us to do a number of things, but the first step is to verify.”
Under-reporting turnover allows companies to avoid or evade their Business Licence obligations because this is what the fee is based upon. Submitting false ‘lower’ turnover figures thus reduces the size of the Business Licence fee payment, and enables firms to pay less than their fair share to the Public Treasury.
Companies with annual turnover above $100,000 are supposed to have their Business Licence submissions certified, and signed-off, by a licensed and qualified accountant so the system already provides some checks and balances. And The Bahamas does have a sizeable small business sector, with previous research for the Inter-American Development Bank (IDB) and Chamber showing more than 90 percent of firms could meet this definition.
Ms Strachan, meanwhile, warned services providers such as attorneys and accountants that reforms to the Business Licence Act passed with last May’s Budget again included “export turnover” in the fee calculation. This means that income earned for work or advice provided to clients based outside The Bahamas must be reported in the turnover calculation and taxed accordingly.
Financial institutions such as banks, credit unions and money lenders also have to resume paying annual Business Licence fees this year, which is likely where a significant portion of the $24m increase in total fee collections is intended to come from. And the legal reforms passed with the Budget also mean that all Business Licences expire at the calendar year end rather than at a company’s financial year-end.