‘Large cry’ from SMEs over Business Licence verification threshold

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top private sector executive yesterday urged the Government to reconsider the proposed $100,000 threshold for companies to have their turnover certified by an accountant, arguing this would almost double Business Licence costs for small firms.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business that there had already been “a large cry” from small and medium-sized companies (SMEs) over the proposed change to the Business Licence regulations.

Documents annexed to the 2015-2016 Budget address state the Government plans to “amend the Business Licence regulations so that it is mandatory that filings exceeding $100,000 turnover are certified by an independent accountant”.

This is a major reduction from the previous $1 million threshold, and effectively catches all VAT-registrant SMEs in the net, imposing on them a legal obligation to hire an external accountant to verify the accuracy of their turnover/sales figures.

Mr Bowe, himself a PricewaterhouseCoopers (PwC) Bahamas partner and accountant, suggested that such an assignment would cost a business around $3,000.

Using a Business Licence rate of 1 per cent, Mr Bowe said the ‘accountant imposition’ would - for a business with annual turnover of between $300,000 and $500,000 - cost them a sum equivalent, or near to, what they will pay the Government in fees.

Thus the proposed amendment, Mr Bowe said, threatens to double the total Business Licence burden - costs and fees - for SMEs, further eroding what are already likely to be narrow profit margins.

Disclosing that the BCCEC had already fielded numerous concerns and complaints on the issue, Mr Bowe told Tribune Business: “I see a large cry from businesses, the smaller ones, saying: ‘Do you know how much you guys charge to do that?’

“It’s a tremendous thing. It’s not a bad thing, but is the $100,000 really the right mark? I’m not sure of the rationale behind it, and they [the Government] may have to revisit that and look at that threshold.”

The $100,000 threshold appears to have been selected because it is the same as the Value-Added Tax (VAT) registration mark, although that is uncertain.

Using numbers to explain the potential impact that the Government’s proposal will have on SMEs, Mr Bowe said a company with a $500,000 annual turnover would, at a 1 per cent rate, pay $5,000 in Business Licence fees.

Yet the $3,000 cost associated with having an accountant certify the firm’s total turnover would take total Business Licence-related expenses to $8,000 - almost double the fee.

“Is it necessary,” Mr Bowe asked rhetorically of the amendment. “Is there a high risk there will be a miscalculation of the Business Licence fee, and the Government will lose money.’

He added that even if the ‘accountant certification’ threshold was raised to $400,000, Bahamian companies at this sales level would have to pay $4,000 in Business Licence fees and $3,000 for the verification.

“You’ve just doubled my Business Licence fee costs,” Mr Bowe told Tribune Business of the impact.

He added that, for a $500,000 company with a 10 per cent profit margin, the new Business Licence ‘verification’ threshold would take an extra $3,000 - and $8,000 in total - out of gross profits.

“I think it’s the $100,000 mark. It was at $1 million before,” the BCCEC chairman said of the private sector concerns, questioning whether the Government’s planned change effectively amounted to regulatory overkill.

With the accounting and recordkeeping requirements imposed on all VAT registrants, Mr Bowe questioned why the Government was seeking additional Business Licence verifications, given that it was already privy to turnover-related information via its new tax.

He suggested that the Christie administration adopt a “risk-based thought process” to additional Business Licence fee checks, adding that prior dialogue with the BCCEC prior to the Budget may have prevented this from becoming an issue.

Acknowledging that the Government wanted to keep key Budget items confidential until it was presented in Parliament, Mr Bowe said the BCCEC would be prepared to sign non-disclosure agreements on certain details to help facilitate the consultation process.

“The devil is in the details in every country,” Mr Bowe added of the Budget.

Comments

hj says...

PC obviously does not care if small/medium size businesses can afford thousands of dollars in accounting fees. Is not a problem for large businesses but for the small ones it would double the cost of renewing their licences. Also with VAT in place it would be much more difficult to underdeclare. But unfortunately this is not in the books of Perryconomics.

Posted 3 June 2015, 5:27 p.m. Suggest removal

TheMadHatter says...

The STUPID thing about the VAT filing process is that you don't have to declare the TIN# of your suppliers and how much you bought from them. I'm not talking about silly little purchases of pens and pencils or light bulbs - I mean your major suppliers.

The whole idea, originally I thought, was that VAT was a system where everyone was their brother's keeper.

For example, a wholesaler declares VAT credits (due to payments at Customs) indicating that they imported $20 million worth of goods for the quarter. 87 retailers (who purchase from that wholesaler) altogether declare that they have purchased from that wholesaler a grand total of $57 million in goods. Well, even at an average 100% mark-up the wholesaler should have only sold $40 million dollars worth locally. So how did the retailers purchase the additional $17 million? Were those goods that the wholesaler had in inventory already? Or were they smuggled in through South Beach? Or does the wholesaler have a "friend" in Customs?

Of course, it's not an exact system (due to the inventory buffer) - but over time it would become clear whether or not 2 + 2 = 4 in the grand scheme of things.

However, without ANY filing information about which TIN is selling to which TIN (even though all invoices have to have both TIN#'s on them) - there is no way to even begin to see what is going on.

Because of this, it is clear that there really is no desire by Govt to stomp out corruption, and this new accountant thing is merely a tool they will use to shut down businesses operated/owned by members of opposing political parties.

**TheMadHatter**

Posted 3 June 2015, 9:01 p.m. Suggest removal

The_Messenger says...

It is ludicrous to force small to medium sized businesses to pay thousands of dollars more for nonsense accountant fees, this will only lead to to more businesses shutting their doors for good. It is already not worth it anymore to do business in this country as it is for many. Unfortunately more Bahamians will lose their jobs and clearly there will be much less VAT collected without businesses in business.

Incompetent governance has failed this country.

Posted 4 June 2015, 12:22 p.m. Suggest removal

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