By NEIL HARTNELL
Tribune Business Editor
The Bahamian real estate industry can “maybe absorb” Value-Added Tax (VAT) if Stamp Duty rates are cut to 6 per cent market-wide, a leading realtor has told Tribune Business.
Mario Carey, head of Mario Carey Realty, told Tribune Business that the Bahamas seemed, through VAT, to be moving in “the reverse direction” from what was required to revive the nation’s real estate market - a sector he and others have often described as the economy’s ‘third pillar’.
While 7.5 per cent VAT will not be levied on the purchase price for residential real estate, both buildings and land, the tax will increase transaction costs for both buyers and sellers.
This is because VAT will be levied on realtor commissions, normally 6 per cent of the purchase price for residential transactions (3 per cent if co-broking), and on attorneys’ fees - calculated at 2.5 per cent of the purchase price.
Mr Carey said he “agreed 100 per cent” that VAT’s imposition was the exact opposite of what was needed to stimulate the real estate market, he himself having repeatedly called for tax-based incentives such as Stamp Duty and real property tax cuts.
“It’s going in the reverse direction,” he told Tribune Business. “I cannot see how our real estate economy can absorb another fee.”
Ministry of Finance officials, in a recent VAT meeting with the Bahamas Real Estate Association (BREA) and its members, suggested the Government remained open to eliminating Stamp Duty on property transactions.
This, though, will likely only happen in the long-term, and much will probably depend on how much revenue is realised from VAT. Stamp Duty’s existence was the primary reason for why the Government decided to treat real estate as ‘exempt’ from the 7.5 per cent VAT levy.
“It’s probably one of the smartest things they could do for the real estate industry or suffer the consequences,” Mr Carey told Tribune Business, of the Government’s examination of Stamp Duty.
“How long will it take to come out of a recovery? We’re still trying to come out of recovery. If we introduce new costs, taxation to the market, how much will it go down?”
Mr Carey said that “a complete elimination” of Stamp Duty on real estate transactions was unnecessary.
“I’d always said across-the-board Stamp Duty of 6 per cent,” he added. “For some reason, that’s a number that just seems to work. If we have that, maybe we can absorb a VAT tax and create incentives in the process.”
Mr Carey said there were numerous issues affecting the real estate market, and he suggested tax break-type incentives be targeted at persons buying distressed properties, doing developments and creating economic activity.
The well-known realtor suggested Bahamian property prices might go down if the market is forced to absorb the extra VAT-related costs.
And he revealed that Barbadian realtors, who he had met at overseas conferences, had warned that VAT “pretty much killed” the real estate market on that island and in other Caribbean nations where the tax was introduced.