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Vacation Rentals Avoid Vat Embrace - For Now

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday declined to specify a timeline for introducing VAT on Airbnb-type vacation rentals, as the government has yet to develop “a working mechanism” for its collection.

Dionisio D’Aguilar, minister of tourism and aviation, told Tribune Business that an “online portal” needed to first be created so that booking agents and Bahamas-based vacation rental owners could easily remit and pay VAT to the Department of Inland Revenue (DIR).

Arguing that convenience of payment led to greater compliance, Mr D’Aguilar said the government had yet to reach out to all online vacation rental websites to inform them of the need to levy and remit 12 percent VAT.

The Minister also revealed that the DIR has determined vacation rentals are to be treated as the importation of a service, as opposed to a good, for VAT purposes in a bid to ease Airbnb’s concerns over having to act as a “tax policeman” on the Bahamian government’s behalf.

Following the signing of the Ministry of Tourism’s Memorandum of Understanding (MoU) with Airbnb last June, Mr D’Aguilar revealed it did not address the website’s collection of VAT on the Government’s behalf because it was uncertain whether landlords were meeting the $100,000 annual revenue threshold that triggers registration.

With that issue now addressed through the DIR’s definition, the Minister acknowledged that some vacation renters and homeowners will “push back” on VAT’s imposition. He argued, though, that most visitors would be expecting to pay some form of taxation given that this was commonplace among other destinations they visited.

Besides placing the vacation rental sector on a taxation “level playing field” with Bahamian hotels, Mr D’Aguilar said it was only fair that they contribute to the expansion and upkeep of vital infrastructure and services that facilitate their stay in this nation.

Outlining the remaining steps to implementation, he told Tribune Business: “The Government has taken a position in that when a person rents a room on Airbnb, and comes here and stays here, that’s considered the import of a service as opposed to the import of a good.

“There was some confusion initially that if you rented a room or property, and earned less than $100,000 a year, then you did not have to charge VAT. The Department of Inland Revenue has taken the position that it’s the import of a service, as opposed to the import of a good, so therefore when you make a booking Airbnb should be informed - they need to be advised of this - to withhold VAT at a rate of 12 percent and submit it to the Government.

“They are happy to do that, but do not want to be in the position of determining or whether a person is subject, or not subject, to VAT. The DIR has opined that every room rented, the person pays VAT. We now have to roll that out.”

Mr D’Aguilar added that Airbnb was “not the only one” to feature Bahamas vacation rental properties, meaning that the Government has to “reach out to every one of them” and get their agreement - and a properly functioning mechanism - to collect and remit VAT on its behalf.

The Government is thought to currently be missing out on significant tax revenues related to vacation rentals, given that payments to landlords - locals and foreign - are frequently made outside the Bahamas via the Internet, never touching this nation.

“There’s some mechanism involved in getting it right and getting compliance,” Mr D’Aguilar said. He added that government revenue officials could currently go online, locate advertised vacation rental properties in the Bahamas, and “follow through” with checks to “make sure the mechanism they’re using is collecting and remitting to the Government”.

“You want people, when they collect the tax from the customer, to be able to easily remit it online,” the Minister told Tribune Business. “Not only is it the issue of whether people pay the tax or n not, but how they pay the tax.

“They don’t want to get a cheque and stand in line at the Department of Inland Revenue. They’re never going to do that. We want compliance, and making it as easy as possible to comply. You want a portal online where they pay it.”

The Government’s systems currently only allow for VAT (collected domestically), Business Licence fees and real property tax to be paid online, meaning further modifications will be required to facilitate vacation rental industry payments.

“There’ll be people who push back on this tax,” Mr D’Aguilar said of Bahamian vacation rentals. “My position is maybe the rate of 12 percent is an issue, but if you go on Airbnb anywhere in the world you’ll pay a tax.

“The vast majority of travellers come from the US. While that’s not to say the amount of tax may deter them from coming, in terms of expectations of paying a tax, yes, that exists. The fact they’re used to paying tax is irrefutable.”

Mr D’Aguilar added that vacation renters also needed to pay their fair share when it came to financing upgrades to the tourism industry infrastructure that supports their stays.

“If you think of the Bahamas as a resort, the resort needs to build infrastructure to accommodate this type of visitors as well, so this is a resort levy,” he told Tribune Business. “They’re going to produce garbage, use the roads, need the police from time to time.

“They’ll use the services of this nation. This is to assist in maintaining a lot of the tourism infrastructure so we can receive these visitors. You want to drive on a nice road through a clean neighbourhood before you experience your home.”

Comments

The_Oracle 1 year, 4 months ago

With no double taxation treaty, our visitors may get taxed twice, U.S. ad Bahamian VAT, Not sure of the tax rate that applies to U.S. Airbnb bookings, perhaps based on State/location? In any case, we sure are buggering things up to get them straight! (?)

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ohdrap4 1 year, 4 months ago

not to mention that many airbnb hosts make less than 100,000 so their business may be vat exempt.

before the days of airbnb foreign second homeowners were already renting online and avoiding the occupancy tax altogether.

the unfortunate who rented homes through local agents did pay the tax.

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DWW 1 year, 4 months ago

If you show me 1 Air BNB which grosses $100,000 per year and i'll show you a slush fund. this is really about WTO wanting to supposedly stop laundering and terrorism financing.

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newcitizen 1 year, 4 months ago

There is a very simple solution that is used in tourist heavy places already. AirBnB collects the tax and remits it to the Bahamian government. This is simple and straight forward and is already added when paying for the rental in many places. The rental owners don't need to worry about collecting the tax or having to worry about tax police and the government gets some revenue.

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TheMadHatter 1 year, 4 months ago

Good move. Get it done right, hopefully by 1st Dec when the real raping starts.

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DDK 1 year, 4 months ago

Vacation rentals used to pay hotel head tax before the implementation of VAT. I believe the previous government removed it with the advent of VAT and either forgot or did not know how to levy the VAT. Visitors use our resources and have a great impact on our environment, particularly our beaches and marine life. The tax needs to be reinstated and reinstated now. There should be no $100,000 minimum annual gross. Bahamians are paying the price of decades of Government helping itself to the proceeds of their taxes in the so-called consolidated fund. Government needs to get off its collective derriere and DEAL WITH IT. If an on-line portal needs to be created, then create it. These M.P.'s have no trouble telling Bahamian business do whatever is necessary to collect their VAT for them.

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