Bahamas Waste: VAT's impact 'pretty huge' if no write-off credit

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Waste’s managing director yesterday said Value-Added Tax’s (VAT) cash flow impact “would be pretty huge” if the Government does not provide credits against uncollected sales write-offs.

Francisco deCardenas told Tribune Business it was critical to the BISX-listed company that the Government, via legislation and regulations, follow through on pledges by John Rolle, the Ministry of Finance’s financial secretary, to provide credits against VAT previously paid on sales write-offs.

Bahamas Waste is among the service-based companies that could be heavily impacted by the Government’s decision to make them liable to charge, collect and remit VAT once the invoice/bill is issued to a customer.

The waste collection services provider has always had a relatively large accounts receivable balance on its books, with this sum having increased since the 2008 recession, as customer ran into difficulty paying their bills.

Bahamas Waste had $1.64 million in accounts receivables on its balance sheet at end-June 2013, a figure that compared to $1.907 million at year-end 2012.

Of particular concern to the company is that VAT could see it ‘double taxed’ on sales receivables it never collects, as it already has to pay ‘tipping fees’ at the Tonique Williams-Darling Highway on garbage collected from non-paying clients.

“It would probably be pretty huge,” Mr deCardenas told Tribune Business, when asked how Bahamas Waste would be affected if the Government did not allow it to regain VAT paid on sales write-offs.

“It’s already a huge number without that [VAT] being involved,” the Bahamas Waste chief said of the new tax’s receivables impact.

“If you went back the past eight years to try and get credit for customers we had paid landfall fees for, and not collected from them, it would be a substantial amount.”

Mr Rolle, during a Bahamas Chamber of Commerce and Employers Confederation (BCCEC) luncheon last week, said the Government would provide credits (refunds) for VAT paid on sales that were ultimately written-off or not collected by companies.

He gave no specifics on how this would work in practice, though, and Mr deCardenas said yesterday: “He said they are to make an allowance, so we’ll see.

“We pay landfill fees, and when the customer doesn’t pay us, we don’t get that money back. He [Mr Rolle] said if that was the case, we’d get credit for that, which is nice to hear. He did clearly indicate that we would get credit for those customers that closed down or do not pay.”

Bahamas Waste’s chief financial officer, Disa Harper, questioned Mr Rolle on this aspect during the BCCEC luncheon, plus other concerns that Bahamas Waste harbours over VAT’s impact and implementation.

She said at the time: “We operate in an environment where we are already collecting government revenue. We already pay a substantial amount of taxes to the Government that are never collected; we mostly have to write them off.”

She also questioned whether there would be a ‘level playing field’ over VAT with respect to enforcement, given the horrible job the Government has done in collecting its existing taxes, particularly the more than $500 million in unpaid real property tax liabilities it has allowed to build up.

“There is a concern,” Mr deCardenas told Tribune Business. “He seems to think there will be the appropriate penalties, fines and prison terms.

“My question is why don’t they do that for real property tax, Business Licence fees and National Insurance Board (NIB) contributions. How can we feel comfortable that they’re going to enforce the VAT laws when they’re not enforcing the other laws on the books now?

“You have companies that do not pay real property tax, and after 10 years they’re given discounts to bring payments up to date, while companies that pay their fees in full are bearing the brunt of the tax.”

Ms Harper also asked whether Bahamas Waste’s existing investment incentives for its green energy and biodiesel manufacturing initiatives would remain in place post-VAT, with Mr Rolle promising they would.

Bahamian companies were warned at the BCCEC seminar that they may have to “tweak” their credit, payment and collections policies in a VAT environment to ensure they did not have to pay the tax themselves on behalf of delinquent customers.

If they did, the consequences for cash flow and size of bank overdraft could be alarming.

This could well mean, for instance, that many Bahamian retailers have to end existing ‘layaway’ policies, where customers pay a percentage of the purchase price up front, and the balance over an agreed schedule.

The retailer, under VAT, will be liable to remit the full 100 per cent tax balance to the Government up front within 21 days of month’s end, meaning they will have to carry this for the customer.

Comments

John says...

Government should have continued to collect its tax at the border and just add sales tax to locally produced goods and services. With this long and drawn out complicated maze of revenue collecting they trying to do, the complexity of it alone will cause it to fail. Sine they want you to reduce the customs duties, add a 'leaving the port" tax, and collect everything one place keep all the headaches of taxes at the docs and airports as much as possible and charge the sales tax jut on services.

Posted 29 October 2013, 10:08 p.m. Suggest removal

PercentieL says...

Who should be responsible for Bahama Waste's lousy credit policies? Companies who make bad decisions regarding who they extend credit to are often burned by delinquent accounts. Perhaps they should front-end VAT collection on risky accounts.

Posted 29 October 2013, 10:19 p.m. Suggest removal

ohdrap4 says...

Hey Percentie L, next time you have a root canal, the doctor will not let you pay in three installments, or you have to pay the tax upfront.

So the Govt. is trying to collect tax unpaid bills. This is unbelievable, at the end of the day, it creates another write off for a business owner, which will in turn raise their prices on what they sell us,

Posted 30 October 2013, 7:44 a.m. Suggest removal

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