By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is owed more than $261m in “outstanding arrears” that were due for payment from three key revenue streams within the 21-month period to end-March 2022, it has been revealed.

Information culled from the Department of Inland Revenue’s (DIR) systems, and disclosed with the 2022-2023 Budget communication, show that some $95.1m which become due for payment during the 2020-2021 fiscal year from VAT, Business Licence fees and real property taxes was uncollected as at May 2022 when the Budget was prepared.

The $95.1m was broken down into $16.874m in VAT arrears; some $8.867m in past due Business Licence fees; and $69.36m in uncollected real property tax. The main contributor to the real property tax delinquency was identified as commercial properties, mainly those owned by businesses or subject to “mixed use”, which accounted for $38.022m or 54.8 percent - more than half - of the sum outstanding.

Vacant property generated another $22.87m in real property tax arrears, just under one-third of the total amount, while residential and owner-occupied properties were identified as responsible for $2.179m and $6.288m of the 2020-2021 arrears, respectively. These arrears stem from a period that coincided with the peak of the COVID-19 pandemic.

These sums were shown to have increased further in the nine months between July 2021 and March 2022, which represents the first three quarters of the current fiscal year. Some $63.381m in outstanding VAT payments were said to be due, along with $20.355m in Business Licence fees and $82.481m in real property taxes.

However, given that the present fiscal year has yet to close those amounts are likely to reduce. In particular, given that end-March was the deadline for Business Licence fee payments, that $20m-plus figure is likely to be lowered as late-paying companies make good on what is owed to the Department of Inland Revenue and Public Treasury. Real property tax and VAT payments will also continue to come in.

On real property tax, commercial and mixed use properties again led the way during the first nine months of the 2021-2022 fiscal year. They were again responsible for $44.368m, or over half, of the total arrears while vacant land accounted for $25.183m. Residential and owner-occupied properties were responsible for $4.31m and $8.63m of the 2021-2022 arrears, respectively.

The Budget documents described the revenue arrears as representing “outstanding balances as of May 2022. Arrears are reported by fiscal year, based on the period in which the tax liability originated. All outstanding balances are included, starting from one day past due”. The figures, they added, included surcharges, penalties, fines, fees and interest due on outstanding tax principal.

The revenue arrears have been disclosed for the first time due to the Minnis administration’s passage of the Public Finance Management Act, which stipulates a host of detailed reporting requirements that must be included in the Budget including a “statement of all tax arrears for the previous financial year and the current year”.

The $261m-plus figure thus joins past arrears, including the $600m in outstanding real property tax said by the Auditor General to be outstanding at the end of the 2017-2018 fiscal year, in highlighting the substantial revenues due to the Government on an annual basis but which it fails to collect.

These sums would make a significant dent in the Government’s annual nine-figure deficits, which it hopes to convert to a surplus by the 2024-2025 fiscal year, while also slashing the rate of growth in the present $10.5bn national debt. The details will also strengthen the hand of those arguing that the Government should focus on collecting all existing taxes due and owing before it considers any new or increased levies

Simon Wilson, the Ministry of Finance’s financial secretary, yesterday told Tribune Business the Government’s aim is to “as much as possible ensure every dollar is collected” via a series of legislative reforms accompanying the Budge and which are designed to stiffen compliance, enforcement and revenue administration across all major tax and income streams.

He explained that “improved compliance” is behind reforms to the Business Licence Act that will require all Bahamas-based companies obligated to pay the fee to calculate the due payment based on the 12-month calendar - not on their 12-month financial year, given that these do not always end on December 31.

“It is very hard, very hard for the tax system to track the multiple tax years for multiple types of businesses,” Mr Wilson said. “There’s no country in the world where businesses can pick their tax year.” The Business Licence (Amendment) Bill 2022’s clause 17 thus “seeks to provide transitional provisions for persons who were on a financial year other than the calendar year”.

The Bills provides three separate transition itineraries for Business Licence reporting, filing and payment depending on whether the company’s year-end is April 1, July 1 or September 1. Those who fall on the latter two dates will have until year-end 2022 to bring their filings and payments into line with the calendar year-end, while those whose financial year ends on April 1 will have until year-end 2023.

Mr Wilson added: “It shouldn’t impact cash flow by changing the tax year.” He said the Government was also committed to the “ease of doing business” by introducing, within the same Bill, the option for companies to pay their Business Licence fees in quarterly installments at end-March, end-June, end-September and end-December once they obtain approval to do so.

The new Bill is also giving Bahamian companies the option to estimate “tax in a particular year” based on their turnover from the previous 12-month period. Should the actual tax due exceed the estimated liability, then the business must pay the difference to the Government by March 31 of the following year. But, if the estimated tax paid is more than what is actually owed, the company will be given a credit towards future Business Licence fee payments.

The Government, though, has also moved to “harmonise the assessment and enforcement regime” for the Business Licence with that of VAT. For companies who are persistently non-compliant, either failing to apply for or renew a licence or not paying tax when it comes due, the Bill gives the revenue authorities the ability to apply for a Supreme Court order to temporarily close an offender’s business premises. Repeated non-compliance is defined as offences committed within a year of each other.

Meanwhile, Mr Wilson said the creation of so-called “VAT withholding agents” under the VAT (Amendment) Bill 2022 was designed to target “the high degree of non-compliance” among vendors who provide the Government with goods and services.

Withholding agents can retain the VAT payable on the purchase of a good or service, either in whole or in part, rather than pay it to the supplier of these products. They then remit the VAT directly to the Government themselves, rather than allowing the supplier to be responsible for this.

Mr Wilson said the Davis administration’s strategy is for the Government’s own ministries, departments and agencies to be named as VAT withholding agents so they can retain and pass the tax on to the Department of Inland Revenue themselves, rather than leave this to non-compliant suppliers.

Noting that other countries who levy VAT also employ “withholding agents”, with the strategy having “proven to be very effective”, the financial secretary added: “There’s a high degree of non-compliance among government vendors. The idea behind that is we’re trying to impact non-compliance among government vendors....

“We do it now informally. We have credit agreements with suppliers where we hold the VAT. It’s formalising what we have in place now.” Mr Wilson said the portion of VAT withheld could vary from, say, 10 percent to 50 percent, with suppliers issued a credit note to cover this. Asked about the impact to VAT revenues, he replied: “It’s going to be material, but there are no estimates. The withholding agents will be the Government agencies.”

Boosting VAT administration and enforcement, the Bill also aims to close a loophole by stipulating that the 10 percent levy is due on vacation rentals that are not offered via a formal online marketplace such as Airbnb. However, while foreigners must register for VAT regardless, Bahamians will only have to do so if annual income exceeds the $100,000 registration threshold.

Approvals granted to foreign real estate purchasers under the International Persons Landholding Act or Exchange Control Act will also be “rescinded” if the VAT due on their acquisition is not paid within 18 months, although this will be reinstated once the sum due is paid.

The Bill also requires that, from October 1, 2022, any conveyances and other real estate-related documents presented for stamping and recording at the Registry of Records must contain their real property tax assessment number. All outstanding real property taxes must be paid before these documents are stamped. And, to further ensure all VAT owed is collected, the Bill bars unstamped documents from being used in court proceedings unless outstanding tax is paid.

The VAT Bill also empowers the authorities to take action against anyone they “reasonably suspect” of leaving, or who is about to leave, The Bahamas in an effort to evade due taxes. They will be able to issue a demand for payment “without delay” even if the due date has not arrived, and “direct that money, goods and chattels.. be seized or garnished”.