President of the Bahamian Contractors Association (BCA) Leonard Sands told Guardian Business on Wednesday that 30 percent of the construction industry operates in the black market and pay little to no taxes.
Sands said that if the construction industry represents 10 percent of the country’s GDP, then it is safe to say that the sector generates some $600 million annually in economic activity. Out of that $600 million, some $60 million is estimated to be paid in value-added tax (VAT), but Sands estimates that that VAT input could be as high as $100 million annually if black market construction firms are brought into the formal sector.
“We need to get more of those firms from the black market into the formal sector, but they have to understand what the benefits of being in the formal sector really are, and why registering for VAT is important to establishing a proper business,” Sands stressed during a recent
VAT information session luncheon hosted by the BCA in conjunction with representatives from the Department of Inland Revenue (DIR).
“We just want to maximize the potential of the construction industry when we bring more people in and have them licensed properly,” he added.
“There are thousands of dollars trading in the black market every day through unregulated labor and contractors who work without ever thinking about charging VAT. Not just here in New Providence, but across the country this is happening, and the government is not getting the tax dollars.”
The Department of Inland Revenue (DIR) does not publicly isolate or publish an exact, standalone annual dollar figure for the total VAT paid by the construction sector. Instead, the government tracks and reports VAT under broad macroeconomic categories. However, sector data, fiscal frameworks, and recent policy shifts provide a picture of the construction industry’s massive fiscal contribution to the national treasury.
A massive portion of construction-related VAT is collected directly at the border by Bahamas Customs during the importation of steel, lumber, electrical supplies, and heavy machinery. Additionally, major commercial construction firms and resort developers fall under DIR’s Large Taxpayer Unit, which accounts for hundreds of millions in annual VAT revenue. Also, general contracting, architectural, engineering, and subcontracting fees are pooled under general taxes on goods and services.
Sands also pointed out that a large number of firms need to be trained on how to submit information to the DIR.
“You’re asking someone to do their taxes, run a job site, and figure out how to keep all of those invoices and records, and to know how to upload them to the DIR’s portal. Over 80 percent of the contractors in the business are single, standalone individuals who hire people as they need for jobs. They don’t have staff sitting in an office doing business for them,” said Sands.
