The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The average Bahamian property is being taxed on just 40 per cent of its market value, a report warning that this is creating “efficiency and equity distortions” that undermine revenue yields and compliance.

The ‘Conditions for improving real property tax in the Bahamas’ report, never released before to the Bahamian people, estimates that the valuation ratio for properties ranges from 20 per cent to 80 per cent of their true market value.

This, its authors warn, is because the legal basis for assessing - and reassessing - Bahamas-based property values for tax purposes does not comply with international best practices.

While the world standard mandates that property valuation reassessments be conducted every three to five years, Bahamian law stipulates that this be done “no more than once every five years”.

The report, produced by Dr Roy Kelly, Dr Graham Glenday and Wayne Forde, says of the Bahamas: “From experience and the limited information available, it is estimated that the valuation ratio for properties ranges between 20 and 80 per cent of real market values, depending on the age of the valuation roll.

“Overall, the valuation ratio may be about 40 per cent. Although valuations may be accurate when first produced, this accuracy erodes over time due to shifts in relative and absolute market values.

“These low valuation ratios, and the variation among the property values, create efficiency and equity distortions, which impact the compliance level and the overall revenue yield from the property tax.”

While the Government has taken some steps following the report’s publication to reassess properties, and update market values and other pertinent information, not much has changed since the report was completed in mid-2011.

“In practice, the property tax valuation roll is a compilation of assessments determined by the Chief Valuation Officer (CVO) on various properties at various times based on various reference dates,” Messrs Kelly, Glenday and Forde found.

“This means that the assessment roll is neither up to date nor consistent, which creates problems of equity, efficiency and revenue yield. The property valuations are out of date, and inconsistently out of date......

“Some assessment valuations were done this year, others were done several years ago and some have not been valued for many years. This creates a property valuation roll which does not ensure equity in the taxes being levied.

“The effective property tax rates will vary considerably across taxpayers, not based on government policy decisions but based on the valuation /assessment administration. The Bahamas needs to adopt a common valuation reference date (tone of the roll) to ensure consistency in the relative equity among property valuations.”

The report also disclosed that the CVO had disclosed to its auditors examples where “commercial properties have been valued at considerably less than small residential houses because of ineffective referencing and application”.

Messrs Kelly, Glenday and Forde also recommended that property values should be indexed to inflation. This, they added, would “minimise ‘sticker shock’ when properties are valued after a five-year period.

“This indexation approach is used in several countries as a way of keeping the property tax roll relatively up to date during the intervening years between the periodic updating general assessments.”

Describing the increase in the real property tax exemption threshold from $100,000 to $250,000 as ”largely a politically-driven ad-hoc adjustment”, the report added that the change was not linked to relative changes in real estate and property prices.

“If the Government was interested in maintaining the owner-occupied exemption amount in real terms, the exemption level should have been adjusted in line with the relative increase in property values as captured on the valuation roll,” the report said.

“ For example, if the property values captured on the valuation roll had increased by 100 per cent over a five year period, then the exemption could have been adjusted by 100 per cent over the same period (from $100,000 to $200,000 to continue protecting the owners living in that valuation bracket of houses).”

And it reiterated: “Due to the lack of a general reassessment process, the property tax roll does not accurately reflect increases in market property values. It has been estimated that the valuation ratio is less than 0.5, meaning that the property values on the tax rolls are less than 50 per cent of the true property market values.

“Since property values have not been adjusted upwards to reflect the real change in market values, the increasing of the property tax exemption from $100,000 to $250,000 dramatically reduced the number of properties liable for the property tax. Properties that should not be receiving the owner-occupied exemption are now receiving the exemption because their properties have not been revalued to reflect the changes in market values.

“To address this issue (and to achieve the original government policy objective), the exemption should be reverted to the original $100,000 level, or the new $250,000 exemption should only be applied to those owner-occupied housing that were recently revalued to realistic market values.

“If the property still reflects the old market value as its assessed value, then the increased $250,000 should not be applied.”