FINAL DEMAND: Tax arrears explode by $260 million over revenue targets

By NEIL HARTNELL

Editor-in-chief of the Tribune

nhartnell@tribunemedia.net

The government owes more than $261 million in “unpaid arrears” which were due to be paid from three key revenue sources during the 21-month period to the end of March 2022, it has been revealed.

Information extracted from Department of Inland Revenue (DIR) systems and disclosed with the 2022-23 budget communication shows that some $95.1 million that will become payable in fiscal year 2020-21 from VAT , business license fees and property taxes was not collected in May 2022 when the budget was prepared.

The $95.1 million was broken down into $16.874 million of VAT arrears; approximately $8.867 million in outstanding trade license fees; and $69.36 million in uncollected property taxes. The main contributor to property tax delinquency was identified as commercial properties, primarily those owned by businesses or subject to “mixed use”, which accounted for $38.022 million or 54.8% – more than half – of the unpaid amount.

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

These sums have been shown to have increased further in the nine months between July 2021 and March 2022, which represents the first three quarters of the current financial year. Some $63.381 million in unpaid VAT payments are reportedly due, along with $20.355 million in business license fees and $82.481 million in property taxes.

However, given that the current financial year is not yet closed, these amounts are likely to decrease. In particular, given that the end of March was the deadline for payment of business license fees, this figure of more than $20 million is likely to be lowered as late-paying companies repay what is owed. at the Ministry of Inland Revenue and Treasury. Property tax and VAT payments will also continue to arrive.

When it comes to property taxation, commercial and mixed-use properties once again led the way in the first nine months of the 2021-2022 fiscal year. They were again responsible for $44.368 million, or more than half, of the total arrears, while vacant land accounted for $25.183 million. Residential and owner-occupied properties were responsible for $4.31 million and $8.63 million of the 2021-2022 arrears, respectively.

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

Revenue arrears were first disclosed due to the Minnis administration’s passage of the Public Financial 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 preceding financial year”. the year and the current year.

The figure of more than $261 million thus adds to past arrears, including the $600 million in unpaid property taxes declared by the Auditor General to be unpaid at the end of the 2017-2018 fiscal year, highlighting 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 nine-digit annual deficits, which it hopes to convert to a surplus by the 2024-2025 financial year, while also reducing the current national debt growth rate of 10.5 billions of dollars. The details will also bolster the position of those who argue the government should focus on collecting all existing taxes due and payable before considering new levies or an increase.

Simon Wilson, finance secretary at the Department of Finance, told Tribune Business yesterday that the government’s aim was to ‘ensure as much as possible that every dollar is collected’ via a series of legislative reforms accompanying the budget and designed to boost compliance , the application and the recipes. administration of all major tax and revenue streams.

He explained that “enhancing compliance” is driving reforms to the Business Licensing Act that will require all Bahamas-based businesses obligated to pay fees to calculate the payment due based on the timing of 12 months – and not on their 12-month fiscal year, as these do not always end on December 31.

“It’s very, very difficult for the tax system to keep up with multiple tax years for multiple types of businesses,” Wilson said. “There is no country in the world where companies can choose their tax year.” Section 17 of the Business Licensing (Amendment) Bill 2022 “is therefore intended to provide transitional arrangements for persons who were in a financial year other than the calendar year”.

The bills provide three separate transition routes for reporting, filing and paying for business licenses depending on whether the company’s year-end is April 1, July 1 or September 1. Those who fall on these last two dates will have until the end of 2022 to make their deposits and payments in accordance with the end of the calendar year, while those whose financial year ends on April 1 will have until at the end of 2023.

Mr Wilson added: ‘It shouldn’t impact cash flow by changing the tax year.’ He said the government had also committed to the ‘ease of doing business’ by introducing, in the same bill, the possibility for companies to pay their business license fees in quarterly installments at the end of March. , end of June, end of September and end of September. -December once they get permission to do so.

The new bill also gives Bahamian businesses the option of estimating “the tax for a given year” based on their turnover from the previous 12-month period. If the actual tax payable exceeds the estimated liability, the company 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 due, the company will receive a credit for future business license fee payments.

The government, however, has also taken steps to “harmonize the assessment and enforcement regime” of the business license with that of the VAT. For companies that are consistently non-compliant, either by failing to apply for or renew a license, or by not paying tax when it is due, the bill gives tax authorities the ability to seek a Supreme Court order. to temporarily close an offender’s business premises. Repeated non-compliance is defined as violations occurring within one year of each other.

Meanwhile, Mr Wilson said the creation of so-called ‘VAT withholding officers’ under the VAT (Amendment) Bill 2022 was designed to target ‘the high degree of non-compliance among suppliers who supply goods and services to the government.

Withholding agents may withhold VAT due on the purchase of a good or service, in whole or in part, rather than paying it to the supplier of those goods. They then remit the VAT directly to the government themselves, rather than letting the supplier handle it.

Mr Wilson said the Davis administration’s strategy is for government ministries, departments and agencies to be appointed VAT withholding agents so that they can retain and pass the tax on to the Department of Inland Revenue themselves. , rather than leaving it up to non-compliant vendors. .

Noting that other countries that levy VAT also employ “withholding agents”, the strategy having “proven to be very effective”, the financial secretary added: “There is a high degree of non-compliance among suppliers governmental. The idea behind this is that we are trying to have an impact on non-compliance among government suppliers…

“We now do it informally. We have credit agreements with suppliers whose VAT we hold. It formalizes what we have in place now. Mr Wilson said the part of the VAT withheld could vary from, say, 10% to 50%, with suppliers issuing a credit note to cover this. Asked about the impact on VAT revenue, he replied: “It will be material, but there are no estimates. The withholding agents will be government agencies. »

By strengthening the administration and enforcement of VAT, the bill also aims to close a loophole by stipulating that the 10% tax is due on vacation rentals that are not offered through a formal online marketplace such as than Airbnb. However, while foreigners must register for VAT, Bahamians will only have to do so if the annual income exceeds the registration threshold of $100,000.

Permissions granted to foreign purchasers of real estate under the International Persons Landholding Act or the Exchange Control Act will also be “cancelled” if the VAT due on their acquisition is not paid within 18 months, but this This will be reinstated once the amount due has been paid.

The bill also requires that, effective October 1, 2022, all conveyances and other real estate-related documents presented for stamping and registration in the Registry of Records contain their property assessment number. All unpaid property taxes must be paid before these documents are stamped. And, to further ensure that all VAT owed is collected, the bill prohibits the use of unstamped documents in legal proceedings unless unpaid tax is paid.

The VAT bill also empowers authorities to take action against anyone they “reasonably suspect” of leaving or about to leave The Bahamas in an attempt to evade taxes owed. They will be able to issue a formal notice “without delay” even if the deadline has not arrived, and “order that the money, property and household effects… be seized or seized”.