Wednesday, May 15, 2013
Wednesday, May 15, 2013
The Ministry of Finance received draft legislation for widespread tax reform this week and, after extensive public consultation, hopes to officially introduce the new value added tax (VAT) system by July 2014.
The Ministry is aiming to make the proposals public by July “at the latest” according to the Ministry’s financial secretary John Rolle (pictured), who added that the government would do all it could to help businesses prepare for the change.
Rolle led a presentation on the topic yesterday as part of the Bahamas Institute of Financial Services (BIFS) Bankers’ Week and reassured the audience that VAT would be good for consumers, good for businesses and good for the economy.
“A VAT system will improve tax compliance. The system has to be very transparent,” he told the audience at the seminar held at the British Colonial Hilton, Nassau.
“The real benefit of the tax reform will show up when the economy recovers. This is not about some drive to do an increase in taxes, it is about broadening the tax base.”
Under the new law, only firms with sales of $50,000 or more will be able to charge and collect VAT. Domestic financial services will be exempt, but fee-based services provided by financial institutions may be subject to the tax.
“Financial services would be considered an export internationally, but the thinking is going to have to be looked at very carefully to make sure the sector does not end up in an uncompetitive position,” said Rolle. “It is going to be very important to find the right formula.”
The introduction of VAT is just one facet of the government’s tax agenda, according to the financial secretary who said: “VAT is just one element in a broader tax reform initiative. There are efforts underway to modernize the customs, business licensing and property tax operations.
“A central revenue agency for non-customs operations will be created so government can use its resources more effectively and focus a lot more on compliance.”
The draft legislation has been drawn up by a steering committee within the Ministry of Finance, which included representatives from the business community. The government has also consulted with the International Monetary Fund (IMF) and Inter-American Development Bank (IDB). The final legislation is expected to be in place by the end of 2013 and Rolle said the period following its implementation in mid-2014 would be used to “fine tune” the new law.
“We have a very ambitious timeline,” he said. “The dialogue will continue even beyond July 2014.”