By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is being urged to abandon plans to levy Value-Added Tax (VAT) on e-commerce transactions, and thereby avoid “stepping over dollars to get pennies”.

Robert Myers, the Coalition for Responsible Taxation’s co-chair, told Tribune Business that it would be impossible for the Government to enforce VAT on international e-commerce providers that supplied goods and services to Bahamians via the Internet.

Calling on the Christie administration to be realistic in what it sought to collect, and where, Mr Myers said “the law of diminishing returns” suggested that the cost associated with trying to levy VAT on these supplies would far exceed the revenues gained.

“It’s in the legislation. It falls under e-commerce and communications services,” Mr Myers told this newspaper. “Our position on that is: ‘Don’t legislate something you can’t enforce’.

“It’s a waste of your time and our time, and you’re stepping over dollars to get pennies. There’s a law of diminishing returns.”

The VAT Bill, in Section 2 (3), says: “The provision by a person domiciled outside the Bahamas of telecommunications services or electronic commerce for the use, enjoyment, benefit or advantage of persons within the Bahamas is” to be treated either as a ‘taxable activity’ or ‘taxable supply of a service’ under VAT.

This, as Mr Myers says, seems to imply that the Government is seeking to levy VAT on the cross-border supply of goods and services generated by e-commerce.

To do so, it would seemingly need foreign-based e-commerce providers, such as Amazon, to register to pay the tax, then collect and remit it to the Bahamian government - something that is highly unlikely to happen.

Among the example of electronic cross-border services deemed VAT-able, at least according to the draft legislation, are website hosting; software and its updating; TV and Internet broadcasts; and distance teaching/learning.

Should the Government actually decide to pursue this, Mr Myers suggested it could result in e-commerce providers and service suppliers electing not to do business with the Bahamas, harming local consumers.

“We’ve got to be sensible about what we do and don’t go after,” he told Tribune Business.

Mr Myers’s fellow Tax Coalition co-chair, Gowon Bowe, had previously raised the e-commerce issue in a July 30 interview with Tribune Business, in which he urged the Government not to “bite off more than we can chew”.

He added then that the feasibility of denying Bahamians access to overseas websites, by blocking local Internet Protocol (IP) addresses, was impossible.

Mr Bowe revealed that denying access to foreign websites not registered to pay VAT in the Bahamas was something raised as an issue in talks between the Government and Coalition members, noting that US IP addresses, for example, were unable to log into UK-domiciled online betting sites.

“One of the elements that came up in dialogue with Coalition members is looking at foreign websites and blocking the IP addresses if they are not registered to do business and pay VAT,” Mr Bowe revealed.

“Is it going to be possibly practical to police? I think our primary focus should be on border control....... Let’s not bite off more than we can chew.”

The Coalition for Responsible Taxation co-chair suggested the Government should concentrate on VAT enforcement, and collecting what was due to it, within the Bahamas only.

Mr Myers, meanwhile, told Tribune Business that the Tax Coalition wanted the ‘virtual warehouses’ proposed by the Government to ease the VAT transition to open a month earlier than the latter is proposing.

While the Christie administration sees the ‘virtual warehouses’ as covering all inventory imported during the period November-December 2014, Mr Myers said the private sector wanted these facilities to open from October 1.

“It’s just not long enough. We hold inventory much longer than that,” he told Tribune Business. “Ideally, we’d like to see four-five months.”

Mr Myers previously told Tribune Business that his companies often experienced four-five month ‘inventory turn’ cycles, double the period covered by the ‘virtual warehouse’.

As revealed by Tribune Business last week, under this plan, companies importing inventory during November and December 2014 will not pay the Excise Tax/duty normally due at the border.

If products imported during this ‘two-month window’ are sold at any time prior to January 1, the business will pay the current duty sum/rate at the time of sale. For those products sold post-VAT implementation date, and which have revised tariffs, the business will pay VAT plus the new duty rate at time of sale.

Such a scheme, which was presented to the private sector last week, has similarities with the over-the-counter ‘bonded goods’ regime in Freeport, where due duty is paid at ‘time of sale’ - not at the border.

However, Mr Myers again reiterated his call for the Government to introduce a ‘tax credit’ scheme as opposed to the ‘virtual warehouses’.

Under this plan, businesses who sold products subject to reduced Excise/duty rates post-January 1, yet had imported them prior to the change taking place, would be refunded the difference via an offset against VAT paid on the sale.

Mr Myers told Tribune Business that the Government could use companies’ Business Licence filings to prevent these ‘tax credits’ from being exploited, as these would show a company’s annual turnover and likely inventory levels.

“At the end of the day, let’s make sure we get compliance,” Mr Myers said. “The more difficult and complicated the tax is, the less compliance you’re going to get.”