By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s top finance official last night pledged “a very aggressive” approach to cracking down on smuggling and tax avoidance schemes believed to cost The Bahamas a combined $200m annually.

Simon Wilson, the Ministry of Finance’s top official, told Tribune Business that alcohol and tobacco smuggling has “been a long-standing problem” that has cost not just the Public Treasury but legitimate retailers, wholesalers and importers/distributors of such products.

And the tax authorities are also seeking to “arrest the spread” of tax evasion and avoidance schemes involving VAT, Customs duties and Business Licence fees. Mr Wilson told this newspaper that besides firms registering for VAT, but never providing a single filing or payment, companies were also employing accounting tricks in a bid to escape paying the Government its due share.

He spoke out after the Prime Minister, in unveiling the mid-year Budget in the House of Assembly, said smuggling and tax evasion/avoidance are estimated to cost the Government $100m apiece annually.

“When it comes to VAT, Customs and Business Licence enforcement, the Ministry of Finance has adopted a data-driven approach, supported by the creation of an analytical unit in the Ministry of Finance,” Philip Davis KC said. 

“The results so far have been impressive, as the work of the unit has uncovered multiple and significant instances of tax avoidance, which may not have enabled them to avoid the taxes they thought that they were avoiding.

“Within just the last three months, the Government has seized over $400,000 in cash and close to $1m in alcohol, part of a large alcohol smuggling operation. Our efforts against alcohol and tobacco smuggling are intensifying. In fact, we believe the country loses close to $100m a year through alcohol and tobacco smuggling. Thus we are committing significant resources to combat this source of revenue loss.”

Mr Davis continued: “Our efforts as well have discovered numerous tax avoidance schemes, which we are actively combatting through audits and investigations. The potential loss in revenue is in the order of another $100m.

“The Ministry is also working with consultants to build analytical tools to detect tax fraud. These tools would allow work which is now done manually to be automated. The net result of these efforts would be an increase in overall revenue in VAT, Customs and Business Licence fees.”

Mr Wilson, acknowledging that the tax authorities are very concerned about the potential revenue loss from such activities, promised that the Ministry of Finance and other agencies are “going to be very aggressive” in pursuing alcohol/tobacco smuggling and tax evaders.

Speaking to the former, he said: “There are two ways to measure it. Obviously, the value of goods we seize, but the next way to measure it is the increase in sales from the compliant importers and distributors. It’ll take us a while to see if there is a shift. If we are successful, compliant importers should see an increase in sales.”

Acknowledging that alcohol and tobacco smuggling “requires special focus”, Mr Wilson added: “There’s some other avoidance schemes which operate which we are working to try and arrest the spread of. The typical avoidance scheme will be to file on a cash basis and not an accrual basis. Some companies do that.

“They recognise revenues on a cash basis on the taxable supply of goods, and recognise expenditure on an accrual basis, so they are reducing the amount of VAT they pay to the Government. There’s also non-filers, persons who simply don’t file and pay their taxes. They register for VAT and drop off the map, so to speak, and don’t file, don’t pay. We have a number of different schemes that we have to resolve.”

Mr Davis, meanwhile, said real property tax yields and collections should be improved by a $90m or 36 percent increase in the combined value of annual billings since his administration was elected in 2021. Describing what he referred to as “considerable progress in improving our tax system”, he added: “Let’s take real property tax, for example.

“I want to note that the vast majority of back taxes owed are owed by foreign property owners-. This is not an issue affecting most Bahamians. For real property tax, I can report that billings are in excess of $340m compared to less than $250m at the beginning of this term.

“This translates into a higher expected tax yield. In addition, the Department has accelerated its property collection efforts, inclusive of the use of the power of sale for foreign-owned and commercial properties.”

Mr Davis also hailed the Maritime Revenue Enhancement Task Force, established by the Ministry of Finance in July 2023, for collecting $1.2m worth of revenue during its first three months as part of efforts to combat tax evasion and avoidance in that industry.

Suggesting that there has been “excessive revenue loss” from the sector, the Prime Minister said: “This Task Force is strengthened by the Ministry of Finance’s collaboration with the Royal Bahamas Police and Defence Forces; Customs, Immigration and Port Departments; the Department of Marine Resources and the Bahamas National Trust.

“This collaborative effort seeks to recover and collect delinquent revenue, and create and enforce new ways to retrieve revenue loss in the maritime field. Let me give you just one example. We discovered a foreign yacht company with more than 50 vessels which had not paid any fees for two full years.

“Over the past six months, the Task Force has carried out ‘Operation Revenue Fortification’, which began in Bimini and has expanded to Abaco, the Berry Islands and the Exuma Cays. Notable progress has been made over the past few months,” the Prime Minister continued.

“An online platform was introduced into Port departments in Abaco and the Berry Islands, as well as in the administrator’s office in Great Harbour Cay. The platform enables these offices to receive credit card and bankers cheque payments, along with cash payments.

“The Maritime Revenue Enhancement Task Force was able to collect $1.2m in maritime revenue in just the first three months of operations.” Mr Davis, while conceding the challenges with the Department of Inland Revenue’s tax portal in early 2024, added that the tax authorities plan to seek out new information technology (IT) related efficiencies.

“Recently, the Department of Inland Revenue (DIR) experienced challenges while upgrading the tax portal. I am happy to report that these issues have been resolved. The DIR stands out among its peers in the Caribbean for the volume of business we are able to conduct online,” the Prime Minister said.

“However, there is still room for improvement. The Ministry of Finance is developing a strategy for a ‘One Tax Bahamas Portal’. The implementation of this strategy will require a significant investment in technology and human resources, an investment that will pay dividends many times over as we improve efficiencies for government and taxpayers alike.”