Value-Added Tax (VAT) is a levy on profit in terms of the difference between the input cost and the amount billed. The Bahamian model is still evolving. No doubt, there will be more exemptions and exceptions. That said, we will undoubtedly be implementing it. The only doubt is when this will happen.

Business owners are practical people. Perhaps the following simplified example will help explain how a monthly VAT return may appear:

* VAT paid on purchases for the period (Input VAT) = $10,000

* VAT paid on expenses for the period (Input VAT) = $ 5,000

* Total Input VAT paid for the period = $15,000

* Total VAT received for the period (Output VAT) = $20,000

Net VAT amount =$ 5,000 (Output VAT - Total Input VAT)

In the example above, vendors increase their selling prices by the VAT percentage. They pay this to the Government LESS the VAT they have paid to others.

If the Net VAT is negative, the Government plans to offset the credit against future VAT due. If the credit rolls over for three months, the company may apply for a refund.

The implementation of VAT will not create a direct expense for a VAT-registered business, since the output tax is simply added to the invoice and paid over to the Treasury, less the input tax already spent on purchases.

Ultimately, the consumer bears the cost, although it is effectively paid in stages as goods and services move through the supply chain (hence Value-Added Tax).

It follows that a business with a good set of books in electronic format has a relatively easy transition ahead of it. A comprehensive accounting system should have a VAT module onboard already, although this may need activation. After that, the final remaining job is for a responsible person to set the triggers for VAT rates per items traded.

As a Certified Advisor for Xero cloud accounting, I am available to assist all my current and future clients in implementing the system, which produces a monthly VAT report in a format suitable for filing returns with the authorities.

I wish it were that simple for informal traders to migrate to a VAT regime. While businesses selling single services may need do little more than manually record VAT paid and total sales, those with a larger range of products may find the time has come to mechanise their books. Concurrent advantages could include:

* Better control over their business

* The opportunity to implement just-in-time

* Reductions in stock shrinkages

* A better handle on future cash flow

* Business numbers at the touch of a button

* A saving in bookkeeping costs

Based on my experience in commerce, I recommend that Bahamian businesspeople use VAT as an opportunoty to mechanise (develop electronic) their accounting methods. When they do so, they will discover a wealth of advantages, not the least of which is the potential to access their accounting records at any time, and at any place, where they find an Internet connection.

To make the decision to prepare for VAT simpler, a 30-day free trial of Xero cloud accounting is available by emailing xero@ressocius.com. There is no software to purchase and no special hardware needed, just a computer, tablet or smartphone with an Internet connection. The cost is about 95 cents per day at the end of the trial period, with no contractual commitment.

Next week we will discuss common VAT problems found in established jurisdictions.

• NB: Simon Cooper is a founding partner of Res Socius, a firm authorised by the Bahamas Investment Authority to facilitate the sale and purchase of businesses, and provide management consultancy services. It is also an agent for the cloud-based XERO Accounting System that is fully VAT compatible. Contact 376-1256 or visit www.ressocius.com.