Updates to The Bahamas VAT regulations could increase Gross Domestic Product (GDP)

31 January 2023

If the Department of Inland Revenue increased the taxable turnover limits for cash basis reporting via VAT regulations, the change could encourage greater commercial activity by small and medium enterprises (SME) Registrants in The Bahamas.

Taxable turnover limits in the Bahamas

The Bahamas Department of Inland Revenue should consider increasing the taxable turnover limits for cash basis reporting from the existing $1million. The Bahamas introduced value added tax (VAT) via legislation in 2014 and began requiring tracking and submission of value added tax during 2015. The VAT Act, regulations and guidelines should be reviewed with a view to allow the Government of The Bahamas to continue to receive strong collections while simultaneously enabling small and medium enterprises (SME) to maximize cashflow opportunities while investing and growing their businesses.

Current VAT rules in the Bahamas

Usually, the amount of VAT paid by registrants is the difference between their sales invoices and purchase invoices. Registrants report these figures and remit amounts due to the Department of Inland Revenue even if the invoices have not been paid, under the accrual basis. With the Cash Accounting Scheme, registrants pay VAT on sales when their customers remit payment and reclaim VAT on their purchases when they have paid their suppliers.

VAT thresholds in the Bahamas

Currently to be eligible for the cash accounting scheme a registrant’s turnover must not exceed $1 million annually. The Department of Inland Revenue issue VAT guidance on the cash accounting and flat rate schemes July 1, 2018. “Any registrant whose annual turnover is $1 million or less will be automatically placed on cash basis accounting, although they may apply to the Comptroller to stay on the accrual accounting scheme.”

VAT regulations updates

The initial policy decision was sound and today we see an opportunity to enhance current policy. We noted the following data regarding requirements to register for VAT and the taxable turnover limit for cash basis in the following jurisdictions:

The taxable turnover limit can have a significant impact on a registrant’s working capital; the capital a business uses for its day-to-day operations. Using the following variables and 10% VAT rate note the possible variations in tax liability and liquidity:

• Registrant A:
  • Turnover of $1,000,001
  • Receivables of $200,000
  • Input VAT paid of $10,000.
• Registrant B:
  • Turnover of $999,999
  • Receivables of $200,000
  • Input VAT paid of $10,000.

Registrants A and B have VAT liabilities of $90,000 and 69,999 respectively. Meaning Registrant B has potentially more liquidity than Registrant A. Liquidity is a key area of focus during budget construction by Registrants.

Conclusion

Given the Government’s desire to grow the country’s Gross Domestic Product (GDP) the opportunity to move the taxable turnover limit for cash basis above the current $1 million threshold should not be missed. These actions are likely to encourage SMEs to grow their workforce and positively impact unemployment while contributing to domestic GDP growth.

Sean Rolle is a partner at Kreston Bahamas, which has a broad portfolio of local and international clients. The firm offers particular expertise in key sectors including financial services, leisure and hospitality, public sector, retail, healthcare, real estate and consumer business.

If you would like to understand more about VAT in the Bahamas, please get in touch.