By NEIL HARTNELL
Tribune Business Editor
Foreigners owning vacant land in the Bahamas owe the Government more than $156.623 million in unpaid real property taxes, with a report recommending the greatest of these debtors be the “logical” first enforcement targets.
The document, never previously revealed to the Bahamian people, discloses the extent to which just over 5,800 non-compliant taxpayers owe the bulk - some 75 per cent - of the $633.416 million in unpaid real property taxes that were sitting on the Ministry of Finance’s books in 2010.
The ‘Conditions for improving real property tax in the Bahamas’ report, authored by three experts in the field, recommended in particular that the Government target ‘vacant land’ owners who owe substantial sums to the Public Treasury.
Although Tax Department data showed there were some 22,000 ‘vacant land’ debtors in 2010, the report found that just 38 of these all owed sums worth $500,000 or more. And another 237 owed more than $100,000 each.
“Under the 2009 Amendment of the Real Property Tax Act, the Government was given the explicit right to seize and sell unimproved property for non-compliance,” the report’s authors wrote. “To maintain credibility, it will be important for the Government to take some symbolic action to enforce non-compliance against unimproved property.
“According to the arrears information from the Tax Department, there are 22,000 vacant land taxpayers who are in arrears for a total of $156 million, with average arrears of $7,000.
“A further analysis of the vacant land arrears shows that there are 38 vacant land taxpayers who owe more than $500,000 each. There are 237 vacant land taxpayers who owe more than $100,000 each. These are the logical taxpayers to target for the enforcement sequence.....
“International experience suggests that taking action on only a few cases will confirm the Government’s commitment to enforcement, establishing the political credibility and the impact on improving voluntary compliance.”
Although the report does not explicitly say so, Bahamian owners of so-called vacant land in New Providence, as well as the Family Islands, are exempt from paying real property tax, so the 22,000 ‘non-payers’ must logically all be foreign individuals or companies.
The report, produced by Dr Roy Kelly, Dr Graham Glenday and Wayne Forde, was completed in mid-2011, but has never been formally released or made widely-known to the public until now.
Its contents remain highly relevant today, not least because little has changed, while the Government appears to be following some of its recommendations, such as the creation of an Inland Revenue Department, to ‘the t’.
And Michael Halkitis, minister of state for finance, has repeatedly talked of increasing real property tax revenues to a sum equivalent to 2 per cent of Bahamian gross domestic product (GDP).
This would almost double existing real property tax collections, and is the same objective set out in the report authored by Messrs Kelly, Glenday and Forde.
The Bahamas was estimated to have $633 million in outstanding real property tax arrears in 2010, a sum that the report said was “more than seven times’ the annual property tax liabilities”.
It agreed that this sum would have to be verified by checking individual files and confirming the sums owed, an exercise Mr Halkitis has said the Government is now engaged in.
He has hinted that the true sum outstanding may well be lower than Ministry of Finance and Auditor-General estimates, and the report also agreed that some debts may be uncollectable and have to be written off.
“Others, however, may be collectable and could bring in considerable amount of tax revenue on a one time basis with an appropriate collection/enforcement strategy,” Messrs Kelly, Glenday and Forde wrote in the report.
“There are 47,596 outstanding taxpayers who owe a total of over $633 million. The majority of outstanding arrears are owed by the commercial properties (61 per cent), followed by vacant land (25 per cent) and owner-occupied properties (15 per cent).
“On average, the commercial taxpayer owes $23,000, while the owner-occupied taxpayer owes $10,490 and the vacant land taxpayer owes $7,096.”
While ‘vacant land’ delinquents were most in number, at 22,073 or 46 per cent of the total, they are the lowest-yielding targets for government enforcement.
Some owner-occupiers (residential homes) were delinquent as of 2010, owing a collective $93.52 million or 15 per cent of the balance.
The greatest debtors, though, are commercial properties, with some 16,608 ‘delinquents’ owing a collective $383.272 million in 2010 - a sum equivalent to 61 per cent of the total real property taxes outstanding.
The report by Messrs Kelly, Glenday and Forde indicated that the Government could achieve the greatest results by concentrating its enforcement efforts and resources on those real property taxpayers owing the largest sums.
“The property tax arrears are heavily concentrated in only a few taxpayers,” the report said. “Only 168 taxpayers (0.6 per cent of total taxpayers in arrears) owe 25 per cent of the arrears, for an average of $943,040 each. Ten per cent of the taxpayers owe more than 75 per cent of the outstanding arrears amounts.”
Based on Tribune Business calculations using the report’s data, just over 5,800 delinquent taxpayers owe over $475 million in unpaid real property taxes to the Government.
“To encourage greater compliance, there is need to design and implement a tax arrears collection strategy to improve revenues, equity and efficiency in the short-term, mobilise the policy will for enforcement, and send a signal to taxpayers to improve voluntary compliance in the future,” the report concluded.
“The Government should undertake a comprehensive collection and enforcement approach structured around a combination of payment and collection incentives, sanctions and penalties, combined with the necessary political will to ensure follow up action be taken against noncompliance to the full measure of the law.”
Messrs Kelly, Glenday and Forde pegged real property tax compliance rates in the Bahamas at between 30-50 per cent, suggesting it fell in the middle of this range, and that the Government again fails to collect the bulk of taxes due to it.
“The Business License and Property Valuation Unit indicates that the property tax roll has about 120,000 properties listed, from which 37,000 tax bills are issued annually. Of these 37,000 tax bills issued, the unit receives payments from about 15,000 taxpayers (40 per cent),” the report said.
“The 15,000 taxpayers who paid their property taxes in 2009 paid about $87 million. Half of this $87 million came from 4,775 commercial properties, which paid an average of $9,362 per property.
“The owner-occupied residential and the vacant land each contributed about $21 million each. Over half of the paying taxpayers (8,177) paid property tax on vacant land, each paying about $2,500. There were only 2,336 owner-occupied housing taxpayers, who paid an average $9,107.”