Pinder: Base for business license tax still unclear
Amendments to the Business Licence Act 2010 are projected to generate$2,000,000 in savings to certain businesses, but may not have accomplished one key goal–clarifying the definition of”turnover”.
“Turnover”is the base on which business license fees are calculated under the Act, making the definition critical to its application.
Feedback at townhall meetings after the act was passed suggested ambiguity in the term as it was defined in the legislation.
In the hotel industry, for example, the definition may have resulted in a tax on a tax, as accounting standards result in the inclusion of government room-tax in total turnover.
“In my opinion, the primary concern of the private sector has not been adequately addressed,”said Ryan Pinder, Member of Parliament for Elizabeth during debate on the amendments in the House of Assembly yesterday.
“There was a lot of discussion and concern about the definition of’turnover’. This amendment provides some revisions; however, there is still uncertainty on what is included in turnover.”
Pinder said that especially in the services industries the usage of the word’accruing’and the inclusion of receivables billed, but not collected, in turnover calculations were causing”much concern”.
Zhivargo Laing, State Minister for Finance, toldGuardian Businessthat while he understood the accounts receivables concern, it was not a simple matter, as businesses include accounts receivables in their financial statements to their benefit, and International Accounting Standards call for the inclusion of revenue booked on account to the extent the sale is made.
He used the illustration of a business that booked a$1 million sale on account on the last day of the year.
“Am I to ignore it just because this was on the last day of your financial year and you haven’t collected this cash yet?” asked Laing.”… That can’t be fair.”
Another change to the definition of turnover included the removal of the words”for his own use and benefit.”
During his contribution to the House, Laing said the feedback suggested that some persons perceived this to suggest net profit, as opposed to turnover, resulting in the clarification.
The concept of using turnover as the base for business license tax calculation was challenged by Pinder, who said that gross profit could be used as the base instead.
He added that any tax system should have as its goal being fair and equitable”while maintaining the integrity of government’s revenue collection.”
“To tax on gross revenues, or turnover, would be unfair to the lower margin business,”Pinder argues.
“A business license structure that taxes on gross profit rather than gross revenues might be more equitable. This would also allow for the allowance for incentives through credits and deductions for charitable contributions, benefits awarded to employees, and the expansion of jobs within a business.”
According to Laing, the changes to the Act will result in a more equitable taxation system. He said that the focus of the Act and amendments were to simplify the processes involved with obtaining and maintaining a business license rather than perfecting the equity of the Act.
“The previous system allowed for too much discretion on the part of the tax assessors to the extent that you could have people in the same business being treated differently because of the deductions being made,”Laing said.”So we’ve sought to remove that level of discretion and simplify the process without increasing the tax burden on the business owner.”
The sectors to benefit from the savings in the amendment include construction companies, hotels, wholesalers of petroleum products, and wholesalers of food products. These segments have been moved from the 0.75 percent tax category to the 0.5 percent category. The net impact of the revision was intended to be”tax neutral”, according to Laing, bringing the revenue from the Act in line with the government’s budgetary projections for business license fees.
He said about$300,000 in additional revenue over budget projections is anticipated.
The government’s summary of revenue for 2010/2011 estimated revenue of$25,348,135 from company fees, down$5,708,044 from the original estimated revenue amount for fiscal year 2009/2010.
The amended definition of’turnover’in the Act would be,”the total revenues in money and money’s worth accruing to a person from his business activities within The Bahamas during the preceding year or in such other accounting period as the secretary may allow, including all cash, credit sales and commissions without any deductions whatsoever; and, for hotels, turnover shall exclude tax collected.”