BAHAMAS: Government goes high-tech for taxes 5% up on Budget.

As published on tribune242.com, Thursday 22 September, 2022.

The Government is employing satellite imagery and artificial intelligence (AI) to boost revenue collections that are 4-5 percent ahead of projections for the 2022-2023 fiscal year to-date, a top official disclosed yesterday.

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that satellite imagery was especially effective in detecting undeclared property construction in the Family Islands where “explosive growth” in one unnamed area of Abaco had resulted in 200 new homes being built post-Dorian.

Declaring that this has reduced real property tax-related work that previously took two to three years to just six weeks, he added that the Department of Inland Revenue (DIR) was increasingly looking to AI and technology-based solutions to select high-risk taxpayers who should be subjected to audits to determine if they are paying the correct sums in VAT and Business Licence fees.

Revealing that the Government has collected $560m in total revenues for the fiscal year to-date, prior to yesterday’s deadline for VAT monthly and quarterly registrants to submit September’s filings, Mr Wilson told this newspaper that some $260m-$270m or up to 48 percent of this sum had been generated by Bahamas Customs via import VAT, tariffs and Excise Tax.

While no targets have been set, he added that the Government’s “ultimate goal” - through increased tax compliance and enforcement that ensures all pay their fair share - is to lower the burden and “effective tax rate” faced by Bahamians by broadening the base of payers and tapping into new revenue streams.

Warning that it is still too early to determine how the Government’s revenues are trending, with this month’s VAT collections set to have a significant impact on the 2022-2023 first quarter outcome, Mr Wilson said nevertheless: “We went in slightly ahead of Budget. I would say we went in 4-5 percent ahead of Budget right now. July performed consistent with Budget.

“It’s still early. After the first quarter we will be more able to say exactly where we stand, once we get through the first quarterly VAT payment deadline, so we will know how we are performing by next week Monday/Tuesday. The main revenue items are performing quite well. Customs is doing exceptionally well, with the VAT on imports. They are around $260m-$270m.”

Mr Wilson added that the Government has “done $500m in revenue to-date” for the first two-and-a-half months of the 2022-2023 fiscal year. The first quarter of each fiscal year, which covers the months of July, August and September, is typically the weakest three-month period out of the four since it coincides with the slowest part of the tourism season and therefore a reduction in the economic activity, transactions and consumption upon which revenues largely depend.

The financial secretary, meanwhile, confirmed that the Government is seeking to increasingly modernise its tax collection and assessment processes via the use of the latest technology. This will replace paper-intensive, manual processes upon which its agencies have relied for years, resulting in an ever-growing bureaucracy that has worked against efficient tax and revenue administration.

Turning to the DIR’s taxpayer audits, Mr Wilson said: “We have to improve. We’re looking at enhanced tools, getting new tools to be more effective. What we are looking at is some form of artificial intelligence. We can’t do it manually by itself. That’s what we’re looking at.”

Employing AI is designed to help the DIR better target its audit at high-risk taxpayers, while also detecting anomalies and discrepancies in companies’ VAT and other tax filings that merit closer analysis by the reconstituted Revenue Enhancement Unit (REU) and other agencies. He added that “best practice” requires between 3-7 percent of taxpayers to be subjected to audit on an annual basis.

The Ministry of Finance, now that Tyler Technologies’ New Providence-wide mapping, reassessment and valuation exercise for real property tax purposes has been complete, is seeking to rapidly extend this to the Family Islands. “We now have to move to the second phase with Tyler with the Family Islands. We want it to start before the end of the year. Tyler is really a very powerful tool; a very powerful tool,” Mr Wilson told Tribune Business.

“What we have done in some of the cays, we’ve purchased satellite images and so we’re able to identify properties like that. You purchase some satellite images of some parts of The Bahamas, and you’d be able to see how many new properties have been put in, then do the assessment by Tyler and the valuation.

“It’s really high-tech stuff. We’ve identified 200 new homes constructed since Dorian, businesses in that area, and are putting the information into Tyler’s system and are doing the assessment. In the normal course, that would perhaps have taken us two to three years. We’ve now done that in probably six weeks.”

Mr Wilson declined to identify which cay or area of mainland Abaco he was referring to, adding: “I don’t want to say where it is because people will get too excited, but it’s an area where, after Dorian, there’s been explosive growth. The idea is, with each island, we’re going to use technology. Satellite images work very well in the Family Islands. It helps us identify new buildings.”

Given that residential properties valued at $300,000 or less are now exempt from paying real property tax, following the passage of Budget-related reforms in June, he is unlikely to be referring to new shanty dwellings or other unregulated structures. Bahamian-owned property in the Family Islands is also presently exempt from the tax, which currently falls just on foreign-owned real estate in those areas.

Meanwhile, Mr Wilson said the Ministry of Finance has partnered with Avenu, a company that works on tax administration and collection with local government authorities worldwide, including in Canada and the US, on a project to identify Bahamas-based vacation rental properties so as to ensure they pay due VAT and any other taxes.

“They have built a platform to identify short-term vacation rentals in The Bahamas, and they’ve identified 7,000,” he added. “It’s a powerful tool which really helps us focus on revenue collection from that area. We will be very conservative in our fiscal plans. We’ve provided for zero revenue [from this area]. We think that if it goes well we might be looking at tens of millions of dollars on an annual basis. We’re talking a whole range of properties; whole islands in some cases.”

The Government is projecting that it will collect record revenues of $2.802bn during the 2022-2023 fiscal year, a near $200m or 7.4 percent increase on the prior year’s $2.609bn. VAT collections are forecast to rise by 24.3 percent year-over-year to $1.412bn as opposed to $1.136bn.

Describing the improvement seen to-date as “the first lap in a long race”, Mr Wilson said: “I think that if we are effective we can lower the effective tax rate for all Bahamians. There are no targets yet, but that’s the ultimate goal; lowering tax burden for everyone.”

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