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Taxation Focus ‘Could Scare’ Vacation Rentals

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas was yesterday urged to develop a comprehensive strategy for growing the vacation rental market, amid warnings its taxation focus may “scare” visitors and entrepreneurs.

Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, told Tribune Business that he would have preferred the Government to release a ‘complete package’ when it recently unveiled its Memorandum of Understanding (MoU) with Airbnb.

Mr Aubry, whose group recently contracted an economic study on the vacation rental market’s economic potential for the Bahamas, said the Minnis administration would have been better served by using the MoU signing to release its growth strategy for the sector and legislation to regulate it.

“It’s hard to judge,” he said of the Government’s plans for the vacation rental market. “You don’t see the full context yet. I haven’t seen anything that outlines the strategy for how we take advantage of this tourism product in any way.”

Acknowledging that the Government’s plan to-date had “a risk to it”, Mr Aubry said he understood its desire to ensure vacation rentals were properly regulated, and that the sector contribute its fair share in taxation on a ‘level playing field’ with the hotel industry.

“I do understand the need for regulation, and to maintain the quality of the current tourism industry, and I understand the need for taxation so we don’t bastardise the current tourism product,” Mr Aubry told Tribune Business.

“But I would like to see legislation as part of a wider strategy, as we don’t want to make anything prohibitive.... This is a perfect vehicle for Bahamian ownership of the tourism product, and I think we want to incentivise that, and drive more local products and manufactured products into the sector.”

Mr Aubry continued: “We don’t understand what the long-term plan is. I’d have liked to see this legislation come in as a package; how we ensure certain standards are maintained, where the responsibility for the taxation lies, and how people can utilise second homes left for them by their families in islands like Andros.

“We want to incentivise it, and not make it difficult for local and foreign investors.”

Dionisio D’Aguilar, minister of tourism, in unveiling the Airbnb MoU pledged that legislation was being developed to address what he described as the “murky issues” affecting the vacation rental sector.

“The regulation will define the parameters of vacation home rentals,” he added. “It will set the standards and best practices to facilitate the sector in preserving the reputation of our destination brand. The new legislation will put in place a modern regulatory framework within which vacation home rentals can operate as an integral part of our tourism sector.”

The Airbnb MoU will see the vacation rental website assist the Government’s efforts to properly tax vacation properties on their rental income, although this will not involve the imposition of Value-Added Tax (VAT) due to difficulties in assessing whether landlords have crossed the $100,000 registration threshold.

While Mr D’Aguilar argued that “the great take away from this is not the tax” but the entrepreneurial opportunities for Bahamians, Mr Aubry said this was unlikely to be the impression gained from the Airbnb MoU.

“The first thing you hear about Airbnb is they’re going to tax it,” Mr Aubry told Tribune Business. “That could scare a number of people moving forward into this.”

Concerns that the Government could ‘throw the baby out with the bath water’ over its vacation rental taxation plans have already been voiced by several Bahamas-based Airbnb hosts.

One, Bruce Raine, International Private Banking Systems’ (IPBS) principal, earlier this week warned that it could “kill” the industry if it failed to adopt a ‘light touch’ approach due to the price sensitivities of international travellers.

Mr Aubry acknowledged that the Bahamas was following other jurisdictions, such as Antigua and the US Virgin Islands, in sealing agreements with Airbnb, but warned that this nation needed to maintain its competitiveness.

“I think these are destinations also looking at it to see how they can drive more tourism,” he said. “We have to be conscious we are competing in a broader market. We have to create more experiences.”

Mr Aubry said vacation rentals should be viewed as an innovative product for attracting tourists to the Bahamas who were not interested in a cruise vacation or staying at a destination resort/hotel with its various attractions.

As a result, he argued that the Bahamas needed to balance taxation with incentives for the vacation rental sector. Mr Aubry suggested that incentives, for example, could be provided to encourage landlords and hosts to register their properties with the Government’s Hotel Licensing Department.

“It’s a very valuable product and we have to be careful how we move it forward,” he said. “If we can get into a place where the licensing policy is clear, and where you can get concessions for using local products, and move it to an island where this tourism product is needed, it’s not so hard to put together.

“How do we take advantage of this, and push forward into a new and exciting model of tourism?”

The vacation rental market has increasingly been viewed as an opportunity to better diversify the Bahamian tourist market, and attract a different type of longer-stay visitor wishing to stay in non-hotel accommodation.

Seen as holding great promise for Family Island development, the sector also provides avenues to develop Bahamian entrepreneurship and diversify tourist spending directly into businesses and communities away from the main hotel/casino strips.

An ORG-commissioned study by Oxford Economics, the research consultancy, recently identified the vacation rental market as a potential growth opportunity that could boost Bahamian ownership and entrepreneurship in the tourism industry, plus aid economic diversification.

However, it found that the Bahamas’ ability to make further inroads into this market was already being impeded by old, impractical laws and regulations that treated vacation rentals like mega resorts.

Apart from the International Persons Landholding Act imposing “especially strict rules” on foreign home owners, the study said all vacation-based properties have to be approved by the Bahamas Investment Authority (BIA).

“While vacation home owners and foreign owners can overcome these hurdles, this comes at a cost in terms of time and money,” the report’s author, the Oxford Economics consultancy, said.

“In the view of interviewees, most of the complexity reflects laws that are designed with mega-resorts in mind. For example, if the owner is not the primary occupant, then the applicant must present detailed business plans that addresses issues such as how many people will be employed, traffic issues, etc. For the vacation home rental market, this is not a practical approach.”

Comments

TalRussell 2 years, 7 months ago

Comrade Matt Aubury, first thing you should get to do is have tourism minister Dionisio to throw out Airbnb with the bath water.

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professionalbahamian 2 years, 7 months ago

More taxation in a struggling economy! Come on!

What's next - is Bahamas to license and tax google and amazon?

Still inadequate taxation on alcohol, and gambling houses right?

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