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Last Updated: Feb 13, 2017 - 1:45:37 AM |
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In this article I will continue my discussion on Fraud, but with a bit more focus on Value Added Tax as it is a topical issue and one that many Bahamian business owners and consumers are concerned about.
V.A.T is a very attractive form of taxation for most governments simply because of the ”catch all quality” of this particular tax mechanism. A value-added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution. The manufacturer remits to the government the difference between these two amounts, and retains the rest for themselves to offset the taxes they had previously paid on the inputs.
The purpose of VAT is to generate tax revenues to the government similar to the corporate income tax or the personal income tax. The value added to a product by or with a business is the sale price charged to its customer, minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer. With the VAT collection remittances to the government, and credits for taxes already paid occur each time a business in the supply chain purchases products. It’s also self-regulating thereby in terms of resources used in its collection provides a minimal input by a government maintained revenue collection service. V.A.T therefore by its very nature is prone to manipulation as it depends on the honesty of business’ to account for their revenue intake from V.A.T.
A common criticism of V.A.T. is that certain industries or services can tend to have easier V.A.T. avoidance. This happens where there is an industry where cash sales are predominant. In some countries V.A.T has even been seen as a cause for the increase in cash transactions as it is very hard to capture V.A.T. in these types of transactions. The Bahamas is just beginning to see a positive growth with electronic and cheque transactions outside of big business’ and its expected that V.A.T. will cause cash transactions be viewed favorably by persons and companies trying to avoid or evade V.A.T.
In discussing V.A.T. with various business persons throughout The Bahamas during the past year it’s clear that the general feeling is that V.A.T. is going to not only be burdensome and but also a cumbersome addition to an already tough business climate. Several persons even went so far as to state emphatically their positions on evading and defrauding the government in this exercise. I don’t personally or professionally believe that persons or companies should engage in fraud. Given the preliminary draft V.A.T. legislation making the rounds I actually applaud The Government of The Bahamas on its draconian penalties, which should help deter these types of activities.
The IMF in a working paper done in 2007 stated “like any tax, the VAT is vulnerable to evasion and fraud. But its credit and refund mechanism does offer unique opportunities for abuse, and this has recently become an urgent concern in the European Union (EU).
In the EU various types of fraud schemes have been developed to defraud V.A.T, but the most common is the missing trader scheme. This scheme involves a person or company buying goods from a country where V.A.T. is not charged and then selling it in a country where it is; charging the consumer the tax and then pocketing the revenue without paying it to the government. You may wonder how that may work in The Bahamas. Well bear in mind that Grand Bahama may be a tax free zone; a company can simply import items here, ship them to Nassau and have them sold with V.A.T. included and not turn over the revenue. It will require a bit of creative accounting but then again Bahamian’s are notoriously creative. Businesses therefore must practice a bit of their own “Know Your Customer” or this case “Company Policy”. Ensure that the company or vendor you’re purchasing from is reputable; that they are compliant with regulators and are paying their V.A.T. Consumers likewise can also check with The Central Revenue Agency and The Consumer Protection Department whom I am sure will create a fraud hotline for persons and businesses to report suspected fraud.
It will therefore be up to us to effectively combat V.A.T. fraud by being vigilant. If the government cannot collect the needed revenue from V.A.T. because of fraudulent practices you can rest assured that they will add more taxes to cover the shortfall and therefore to quote Winston Churchill, “There is no such thing as good tax.” So keeping them to a minimum should be everyone’s goal.
So as always be aware and be safe!
Gaylord Taylor speaks on fraud at Rotary Club of Grand Bahama Sunrise
Gaylord Taylor is a
certified Bahamian fraud examiner and CEO of AGT Security Services in Grand Bahama
© Copyright 2014 by thebahamasweekly.com
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