By NEIL HARTNELL
Tribune Business Editor
A top realtor yesterday expressed concern over Value-Added Tax’s (VAT) potential “negative impact” on the sector, given that it would likely increase transaction costs already equivalent to between 13.5-17.5 per cent of the final purchase price.
Geno Maycock, Colonial Realty’s president/broker, added his voice to those calling for the Government to provide “more clarity” on VAT’s likely impact, after a senior Ministry of Finance official confirmed that the 15 per cent levy would be applied to broker’s commissions.
Mr Maycock, who is also a Bahamas Real Estate Association (BREA) director and chairman of its continuing education/public relations committee, had asked John Rolle, the Ministry of Finance’s financial secretary, whether Stamp Duty levied on real estate transactions would be either reduced or eliminated to compensate for VAT’s introduction.
He pointed out that this existing tax, levied at a 10 per cent rate on all real estate deals worth $100,000 or more, when added together with realtor commissions and legal fees, meant transactions costs were already equivalent to 13.5-17.5 per cent of purchase prices.
Mr Rolle, speaking at the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) luncheon on VAT, responded by saying: “I don’t want to get into specifics too much.
“As far as professional services, legal services will be an area where VAT is due. Commissions are an area where the VAT will be charged.”
Mr Rolle’s confirmation that realtor commissions, normally set at 6 per cent of the purchase price, will be subject to VAT brought shock and disbelief to the faces of Mario Carey Realty employes sat at the same table as Tribune Business.
The Financial Secretary also indicated that the Government, desperately in need of every cent of revenue it can get to close a projected $443 million fiscal deficit, and shrink a $5.5 billion national debt, was unlikely to reduce or eliminate Stamp Duty on real estate transactions.
These generate around $120 million in annual revenues for the Government, and Mr Rolle added: “I expect the [real estate taxation] regime will stay fairly as is, except that the commissions and other fees will be subject to VAT.”
Asked by Tribune Business yesterday whether he was satisfied with Mr Rolle’s answers, Mr Maycock replied: “Not completely.
“As you might have gathered from his response, it seems as if they’re still in the process of fine tuning or determining how exactly VAT is going to work. As he stated, it’s something they’re still working on.”
Mr Maycock said the real estate industry encompasses many niches and parties, including buyers and sellers, property management companies, appraisals, rentals and brokers.
While appraisals and commissions will be subject to VAT, and residential property sales and leases have previously been described as ‘exempt’, another big unknown for the industry is whether the 15 per cent tax will be levied on commercial sales and leases.
“Like any and everyone else there is a concern,” Mr Maycock said of VAT, “because we’re in a time when there is some concern globally over the economic conditions, and VAT, while it’s an important and necessary move, it can have some negative impact to our industry if not implemented properly.
“That’s what we and everyone else are concerned about. Is it going to be phased in? There’s still some unanswered questions.”
Levying VAT on real estate broker commissions and legal fees will further increase transaction costs in a sector still struggling - particularly in the domestic market - to rebound from the after-effects of the recession.
Assuming that realtor commissions and legal fees are calculated at 6 per cent and 2.5 per cent of the purchase price, respectively, on a $300,000 home these will work out to $18,000 and $7,500.
But, with VAT at 15 per cent added on, the consumer will have to pay an extra $2,700 on the broker commission, and $1,125 on the legal fees - for a total of $3,825.
Mr Maycock added that BREA had asked for a ‘one-on-one’ meeting with the Ministry of Finance and Mr Rolle over VAT, and based on the outcome of such talks, “maybe it’s not such a concern”.
“There are things we’d like to meet over and get a definite on,” he added,” how it affects the commission area and the parties involved in this.
“We need clarity on it, real estate being one of, I wouldn’t say most important, but a very strong pillar of our economy. We need to see how our future looks with VAT implemented.”