By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamas will have to eliminate its nationality-based real property tax exemptions that discriminate in favour of locals before it becomes a full World Trade Organisation (WTO) member, a report warning the current system is “not in accordance with international practice”.
The ‘Conditions for improving real property tax in the Bahamas’ report, never before revealed to the Bahamian people, thus warns that the exemptions enjoyed by Bahamian ‘vacant land’ owners in New Providence, and in every Family Island, will either have to be completely changed or abandoned.
The report’s authors, Dr Roy Kelly, Dr Graham Glenday and Wayne Forde, said: “Exempting property based on the nationality of the property tax owner is not in accordance with international practice.
“This nationality-based exemption will need to be changed when the Bahamas joins the WTO, since the Bahamas will not be allowed to differentially tax based on nationality.”
The Government, via the Ministry of Financial Services, has already given notice of its intention to continue with the WTO accession process, with new minister, Hope Strachan, effectively saying she has picked up where her predecessor, Ryan Pinder, left off.
Messrs Kelly, Glenday and Forde thus called for the Government to review all property tax exemptions extended to Bahamians only, reiterating that these would need to be eliminated upon WTO accession.
“This means that the current exemption on unimproved land owned by Bahamians on New Providence will need to be adjusted. In addition, the current exemptions given to Bahamians on all property on the Family Islands will need to be restructured,” they warned bluntly.
This provides further evidence of how the ‘rules of the game’ for the conduct of business in the Bahamas will change suddenly, and dramatically, once this nation accedes to full WTO membership.
It is unclear how many in the private sector, and wider Bahamian society, have been paying attention to this, given that Value-Added Tax (VAT) and possibly now National Health Insurance (NHI), have dominated the policy agenda.
The ‘Conditions for improving real property tax in the Bahamas’ report, meanwhile, went further in calling for the Government to review what it described as “several unique and generous tax exemptions and relief schemes” when it came to real property tax.
In particular, it called for the $250,000 ‘exemption threshold’ for owner-occupied real property tax to be reduced back to $100,000.
Explaining the rationale for this recommendation, it said: “First, the current owner-occupied exemption of $250,000 is substantially higher than those in the neighbouring United States.
“Second, the exemption is not means-tested, meaning that the exemption is given to rich and poor alike, perpetuating inequity. Third, the level of exemption was increased without a systematic updating of property tax roll values. Fourth, the exemption is difficult to administer to ensure that second homes are not also receiving a second exemption.”
Messrs Kelly, Glenday and Forde said the $250,000 Bahamian exemption was more than 2.5 times’ higher than the largest equivalent in the US, where exemptions ranged from $7,500 to $100,000.
“Increasing the exemption levels, while not systematically adjusting the property assessed values to be closer to market values, means that many properties drop off the property tax roll through reverse ‘bracket creep’,” the report said,
“It is reported that the increase in the exemption level from $100,000 to $250,000 reduced the number of taxpayers substantially, eliminating many properties from the tax roll. Due to the lack of an effective reassessment process, many of the owner-occupied houses have not been revalued in many years. “Thus, increasing the exemption by 150 per cent, while not reassessing the properties to keep up with real market value, meant that many houses fell below the valuation threshold.”
Messrs Kelly, Glenday and Forde also described the exemption Bahamians enjoy from paying real property tax on any Family Island as “overly generous”, because it made no distinction between rich and poor persons, plus high value and low value properties.
“Both rich and low income Bahamians are tax exempt from the property tax, thus not directly contributing to the payment for government services on the Family Islands,” the report said.
“There is no good reason why richer Bahamians (owning expensive properties) on the Family Islands should not be contributing to the payment for government services.”
And, significantly in the current context, Messrs Kelly, Glenday and Forde recommended that real property tax be imposed in Freeport from August 2015 onwards.
“As with the exemption granted to hotels, the Hawksbill Creek Agreement provisions on property taxation should also be reviewed, with property brought into the tax net upon expiration of the current agreement,” they argued.
Many Bahamas-based resorts are exempt from paying real property tax for up to 20 years under their Hotels Encouragement Act agreements, thus ensuring they enjoy a substantial concession, while the Government suffers “quite large” revenue losses.
“The property tax exemption for hotels, rental pooling, and time shares should be reviewed and reduced,” the report recommended.
“Although perhaps well intentioned, the generous property tax exemption on hotels and other tourist-related investments may be extravagant and unwarranted, potentially allowing hotel investments to be property tax exempt for up to 20 years.
“This exemption provides a major subsidy to the hotel investors, and to users of those hotels who receive government services without paying the property tax and the true costs of government-funded services.”
Calling for the Government to conduct cost/benefit analysis of all its tax exemptions, the report said: “Countries do provide a number of tax exemptions to stimulate economic development.
“These tax exemptions should be costed and monitored to evaluate the impact from the exemption, and to ensure that the property is brought on to the tax roll at the conclusion of the exemption. In accordance with international best practice, all property tax exemptions should be included in the property tax act to encourage greater transparency.”
Messrs Kelly, Glenday and Forde concluded: “To mobilise increased property taxes in an equitable and efficient manner, the Government must review existing tax base exemptions, potentially leading to a broadening of the tax base.
“As identified above, the tax base currently has very generous and perhaps unnecessarily generous exemptions, which dramatically reduces the potential property tax revenues and introduces possible, un-intentional impacts on the equity and efficiency of the tax system.”
Comments
Well_mudda_take_sic 9 years, 1 month ago
All three of the report's authors, Kelly, Glenday and Forde, are shining examples of idiots as is Neil Hartnell for swallowing their hog wash hook line and sinker. The U.S. is a founding member of the WTO, but that has not caused Florida to have to do away with its longstanding Homestead Exemption and Save-Our-Homes Cap, both of which discriminate against non-residents of Florida (including non-U.S. citizens) when it comes to the assessment and levy of real property taxes on residential property that is not owner occupied. What's good for the goose is good for the gander and our brain dead government needs to start looking out for the interests of Bahamians instead of doing whatever they are told to do by outside foreign interests. Thanks to the FATF, OECD, IMF, etc. it's now much harder for Bahamians and foreigners to open a bank account in the Bahamas than it is for Americans and non-Americans to open a bank account in the U.S. And our corporate financial services industry does not enjoy all of the freedoms enjoyed by places like Nevada and Delaware when it comes to less regulation and lower costs, not to mention greater privacy afforded their clientele. We need to start doing what's right by our own interests rather than simply succumbing to the demands placed on us by foreign interests like the WTO, FATF, OECD, IMF, etc. Any Bahamian with a decent education and an ounce of common sense knows that our WTO negotiating team headed by the Winder guy at Bahamas firm of Deloitte & Touche failed miserably in representing the interests of Bahamians at large.
The_Oracle 9 years, 1 month ago
"It is unclear how many in the private sector, and wider Bahamian society, have been paying attention to this, given that Value-Added Tax (VAT) and possibly now National Health Insurance (NHI), have dominated the policy agenda" Most Bahamians do not think their world will ever change, either by local conditions or external. They are in for a nasty wake up. All of the legislation passed since at least 2003 has been driven by the compliance requirements of the OECD, WTO, IMF, EU_EPA CARIB-CAN, and all the lesser international bureaucracies we have made ourselves beholden to since independence. Non discriminatory treatment of the Nationals of all signatory countries is one of the most basic tenets of these agreements we have signed! The signing of these agreements by successive Government administrations has been driven by political self preservation, not in the best interests of the Bahamian people. Our successive administrations have not prepared nor involved Bahamians in the processes or principals of these agreements. But we will have to live with them. BTW, Well_Muddo, while you may be right on the Homestead exemptions, they also have income tax and overall tax accountability. Are you comfortable with the potential for our Government to come and seize your assets under VAT and future legislation? They have given themselves that power. How long before they use it?
Economist 9 years, 1 month ago
Real Property Tax is just the beginning. The Bahamas is the only country in the Western Hemisphere who is not a member.
There are several new laws that will be passed by our Parliament to comply. Bahamians will not be happy.
But it will happen.
The_Oracle 9 years, 1 month ago
Yep, it will happen, irrespective of the rhetoric fed to us by the politicians, irrespective of private sector complaint, all a dollar short and day late. Honesty is not their strong suit, nor can they go against what they have gone along with for decades. VAT was simply the first tax enacted to replace revenue lost from the requirement to lower duty rates. (WTO) Fed to us under the guise of paying down the National Debt. (IMF) structured by the IMF. Personally I see Income tax right after real property tax across the board, by 2018 at the latest. Anyone who has read what ever can be found on the subject would have to agree. read despite our successive administrations best efforts to conceal our position from us.
TheMadHatter 9 years, 1 month ago
So does this mean that foreign nationals in the Bahamas will have to pay these taxes too? Will their cost of living go up? Or will Social Services step in and give them free food and shelter and tax our hips for the money to do so?
I will be that THEY will pay very very little taxes if any. I hear some of them complaining about the price of food. Oh, if only the price of food could double overnight. That would be a good thing, and an excellent wake up call to all and sundry.
Stand on the line for your daily bowl of soup. Then there will be more attention paid to "how we got here", and who's getting all the free stuff from Government.
killemwitdakno 9 years ago
would be too late for a wake up call. can prevent more taxes, can't remove them.
avidreader 9 years, 1 month ago
In the event that Bahamians eventually are required to pay real property tax on their Family Island homes, etc., a simple question arises relative to the return that can be reasonably expected for their tax dollars. Will the roads of the many and far-flung subdivisions be paved at public expense and will street lighting be installed along with the commencement of regular garbage collection services? Provided that the newly-enrolled taxpayers see some return for their contribution there should be less resistance to the imposition of a new tax.
Also, government agencies should make a sincere and sustained effort to inform the general public of the "advantages" to be expected from membership in the World Trade Organization (WTO).
KK 9 years, 1 month ago
This is from the 2011 IDB report, no? Why is Neil Hartnell recycling an old report? Yes, the tax issues are still live but he could have maybe done a better job of using the source and at least saying that even though it's four years old, the same issues remain.
proudloudandfnm 9 years, 1 month ago
Why are we joining the WTO?!?!?!?
What do we trade?
Why are we allowing big business to dictate to us?
We are a country of just over 300,000. We live under different circumstances so we should have laws that fit us, not Walmart and Sam's Club man....
Sickened 9 years, 1 month ago
I agree with you. We don't TRADE, we BUY products and no one that we buy from cares what taxes/duty we pay at home.
TheMadHatter 9 years ago
Yeah, too bad Hubert Ingraham didn't give a speech about that before he left office - and also too bad that Dr. Minnis ain't sayin nothin about it even now. So the FNM ain't no saviour in this case.
jam 9 years, 1 month ago
I don't see any advantages to WHO. stop the nonsense.
John 9 years, 1 month ago
The one world "mark of the beast " system is coming. May God help us!
Economist 9 years, 1 month ago
Our Financial Services and our Industrial Area (in Freeport) have all suffered because we are not in the WTO.
Well_mudda_take_sic 9 years, 1 month ago
You are clearly one of the very very few individuals who will somehow manage to benefit from the Bahamas joining the WTO on the basis of the lousy terms our country's incompetent negotiating team have recommended to our corrupt government led by brain dead Perry "Vomit" Christie.
killemwitdakno 9 years ago
What's the point of asking the UK for restitutions if in just 40 years of independence, locals can't own and pass down homes because tax free is "favor" !! We're not allowed to provide our own economic package where possible? give me a break.
HELL NO TO WTO !
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