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Bahamas Drastically Rethinks VAT Plans

by Jason Gorringe, Lowtax.net, London
25 July, 2014

With less than six months to go until the Bahamas introduces its new 7.5 percent value-added tax regime from January 1, 2015, the Government has tabled revised legislation to overhaul numerous aspects of the regime.

Compared with the prior legislation, which had anticipated that VAT would be in place by July 1, 2014, the new legislation removes a number of exemptions and simplifies administrative requirements.

While it had previously been proposed that a lower threshold of USD50,000 should be in place on professional services and hotels, the Bill now provides for a single VAT registration threshold of BSD100,000 (USD100,000). Provisions have been made to allow for group registration. A related group of companies would be allowed to use a single VAT account and to file a consolidated VAT return, eliminating the need to recognize input and output taxes on intra-group transactions.

The Bahamas will introduce a regime of VAT inclusive rather than VAT exclusive pricing to simplify price comparisons by consumers, especially when navigating between VAT registered and non VAT-registered suppliers.

Following consultations with experts from New Zealand, the Government has decided to revise the legislation to cut back on the list of exemptions. Exemptions for goods are completely eliminated, as is the VAT exemption for domestic transportation.

The range of exempt financial services is narrowed to credit and deposits (or savings) products. This covers all forms of lending and savings products issued by banks, insurance companies, and other financial institutions. For insurance, the products affected are in particular life policies and annuities. To give the industry time to prepare, exemptions on non-life insurance and annuities (such as property, health, and casualty) are to be preserved until June 30, 2015.

The exemption on education services is limited to include the explicit tuition-funded courses of study for enrolled students in pre-school, primary, and secondary school, and for programs of study leading to the award of a graduate or undergraduate degrees at the tertiary level. This does not include services or goods paid for outside of the tuition (like meals, books, extracurricular activities, etc.,) tutoring, professional development, and continuing education, seminars, or diploma and certificate courses.

Health care exemptions will be limited to public sector care for certain persons.

Changes in the Bill include that VAT would be administered by the VAT Department under the Ministry of Finance, to facilitate the transition towards a centralized revenue authority. The VAT Department will be enabled to issue Tax Identification Numbers (TINs) to businesses even if they do not have a sufficiently high turnover to register for VAT. VAT Registrants will be given a TIN as well as a VAT number.

Other revisions to the legislation include:

  • Less complex procedures for tax credits against bad debt. The Simplified Method relieves small firms of accrual accounting for VAT, and correspondingly all complications relating to bad debts. Larger firms that have to continue to use accrual accounting would face fewer hurdles when claiming credits for bad debts. These credits would be allowed when bad debts are recognized, as opposed to when collection efforts are exhausted.
  • Reduced timeline for payment of VAT refunds. Administrative procedures in the VAT Bill would allow businesses that file monthly returns to request refunds within two months of the period in which the net credits arise. Earlier drafts of the legislation had effectively imposed wait times of up to and beyond six months. VAT registrants that sell zero-rated supplies, which would always expect to be in a net credit position, would not be subject to such waiting times; such refund claims would be allowed at the same time as the VAT returns for the relevant tax period. Registrants that are allowed to file their returns on a less frequent basis would be able to claim refunds at the time of filing.
  • More time to file the VAT return. Businesses will have up to 28 days after the end of each tax period to file their returns. This is an extra week more than proposed in the earlier draft of the VAT Bill.

The new Value Added Tax Bill and accompanying regulations were tabled before parliament on July 23, 2014.

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