Perhaps the penalties and interest are not deterrent after all
Introduction
The Hotel Restaurant and Tourism Taxation Ordinance requires all businesses that are governed under this ordinance to collect the 12% taxes from their clients and then remit them to the Government by the 21st of the following month. If the businesses do not pay by the 21st, they are subject to a penalty of 20% of the amount outstanding and then interest at a rate of 1.5% per month.
It is important for all establishments in the industry to understand what charges are taxable. I learned my lesson the hard way. I am a property manager and quite frankly, I thought that taxes were only payable on room rate until TCIG audited one of the properties that I managed. It was revealed to me with the supporting documentation from the ordinance, that taxes are payable on all charges that you offered to guests during their stay. Therefore, I had to pay taxes, interest and penalties on the cleaning fee and the fee that we charged to guests for groceries. I had no idea but one thing I can say is that I will not repeat the same mistake twice.
History is repeating
In 2019, the Government brought to the House of Assembly, the waive to write off penalties of $85million for hotels and restaurant. Most of the penalties were for Beaches, and it was my understanding that the hotel was only paying 60% of the accommodation tax. To this date, I am uncertain as to whether the guests were only paying 60% or whether the hotel was collecting the full amount but only remitting 60% to the Government. In any event they were charged with interest and penalties which were later written off.
It appears that there is some misinterpretation of miscalculation of the Hotel Restaurant and Tourism Taxes. Obviously, the issue has not been resolved because five years later, The Government brought to the House of Assembly to write of $13,386,709.7 in penalties and interest in connection with Holiday Villages aka Club Med. In addition to Club Med, the Government also brought to the House of Assembly to write off another $7,625,815.35 in penalties and interest for forty-nine other proprietors in the industry.
I am quite sure in 2019, Club Med was also listed on the list of proprietors where the interest and debt would be written off and so I don’t know why we are here again dealing with writes off again.
The penalties and interest are written off, not the taxes
It seems to me that these 49 proprietors either collected the taxes or were supposed to charge their customers the taxes but failed to do so and if they did collect, they did not remit them to Government. Therefore, they are being charged penalties and interest. These proprietors still are obligated to pay the taxes. The Government has rightly not written the taxes. However, they plan to write of the penalties and interest. My concern though is that if these proprietors do not pay their taxes, then they will continue to incur penalties and interest.
In the situation with Club Med, they had an outstanding tax of $3,601,702. 42 cents to cover the period April 2015 to February 2019. A payment plan was agreed between TCIG and Club to pay this with $1,550,851.20 by March 2024. However, the penalties and interest were waived which is $10million more than the actual taxes.
Taxes collected belong to the TCIG
The taxes collected by TCIG are not an expense of the businesses. The guests pay for those taxes and the businesses should remit them to the Government as they belong to the Government. Apparently, there are some situations in that some establishments did not charge the guests any taxes, for whatever reason, I don’t know. Legally, though they are obligated to pay for those taxes out of their pockets as they cannot go back to the guest and ask them to pay. This of course will create a major cash flow to some businesses and perhaps even force some of them to close.
Do interest and taxes deter businesses?
One of the main purposes in establishing high interest and taxes is to encourage people to pay on time. However, it does not seem that it is a deterrent.
Some of these same proprietors were also listed in 2019 when the $85million was written off. I suppose they are still on the list because they never paid the actual taxes and some of them challenged the Government and that took time.
Recommendations
I think we need to increase the resources in the Revenue Department. Some of these major resources should have an “account manager” to deal with them monthly so that this cannot amount to this situation again.
I also that there must be constant dialogue between the Proprietors and the Revenue Department. I do like the requirement now in which establishments must submit their details for the submission of their revenue.
I also know that if you do not pay your taxes, it is a challenge to renew your business licence and I think that is a great initiative. No one should be owing Government taxes and still being allowed to get a business licence.
Finally, I think the penalties and interest rates need to be reviewed. Perhaps, there should be a one-off flat fee rather than percentage.
Conclusion It seems so unfair that some people are paying their taxes while others are not. It is also unfair that you are paying the penalties while others are being written off. This cycle should not be repeated. I get it, it will continue as long as the tax remains outstanding. At some point, the Government needs to make decision about the taxes especially to those proprietors who did not charge guests any taxes at all.