By NEIL HARTNELL
Tribune Business Editor
The deputy prime minister yesterday pledged that any “confusion” and “run around” stemming from the switch to VAT on real estate transactions will be “sorted out by Monday”.
KP Turnquest told Tribune Business that the government was moving to ensure both VAT and the various stamp duty payments generated by such deals are handled by the Department of Inland Revenue at its Carmichael Road head office, rather than split between its main revenue collection agency and the Public Treasury.
He was contacted by this newspaper after several attorneys, speaking on condition of anonymity, said they were going “back and forth” between the two departments amid “total confusion” over which was responsible for collecting and assessing due tax following this week’s implementation of the new regime set out in the 2019-2020 budget.
“There is a bit of legitimate confusion between Inland Revenue and Treasury that will be sorted out by Monday. It’s brought on by the fact that while real estate attracts VAT, affidavits and other documents attract stamp tax,” Mr Turnquest told Tribune Business.
“These two functions are in separate locations, resulting in a bit of a run around. As I mentioned, we are sorting this out with a view to house both the Stamp Tax and VAT at the Department of Inland Revenue for these transactions.”
Mr Turnquest referred Tribune Business to Marlon Johnson, the Ministry of Finance’s acting financial secretary, for further comment and information. Mr Johnson did not respond to Tribune Business’s phone calls and messages seeking comment before press time last night.
However, the deputy prime minister said he had been informed by the Department of Inland Revenue’s director that the agency was continuing to accept and process conveyances relating to real estate transactions, turning them around in the normal three-day timeframe.
He described as “nonsense” suggestions by some attorneys that this procedure had “ground to a halt”, impacting a key government revenue stream. Mr Turnquest also said the Department of Inland Revenue planned to speak to the Bar Association and the Bahamas Real Estate Association (BREA) to clarify any concerns.
Acknowledging that there were likely some “kinks” caused by the switch from Stamp Duty to VAT as the main real estate transfer tax, he pointed out that the new regime had been in effect for less than a week and said: “Give us a minute.”
The Government’s reversion to VAT is the second major change to the real estate transaction tax in as many years. When the Christie administration was voted out of office this was split into 7.5 percent/2.5 percent between VAT and Stamp Duty on deals worth $100,000 or more, with VAT accounting for the majority share.
This was subsequently changed in the 2018-2019 Budget to a 10 percent Stamp Duty, with the VAT element dropped. Property deals worth less than $100,000 attracted the 2.5 percent Stamp Duty rate.
However, the Minnis administration altered course just one year later by changing the levy to VAT, although the rates remained the same. Mr Turnquest revealed during the Budget debate that the move was designed to ensure The Bahamas complied with the European Union’s (EU) demand to eliminate so-called “ring fencing” or preferential tax breaks for foreign investors.
One attorney, speaking to Tribune Business yesterday on condition of anonymity, said they understood Public Treasury personnel were supposed to transfer over to the Department of Inland Revenue on Monday to handle the “Stamping” of documents related to real estate transactions but this never happened.
“Right now attorneys are going back and forth,” they said. “There’s no expertise at Inland Revenue to handle and process conveyances. There are very important legal technicalities that, if you get wrong, you do not attach the appropriate Stamp Duty and it gets complicated.
“Attorneys are frustrated, the Public Treasury is frustrated and the Department of Inland Revenue is frustrated.... It’s totally confusing. This issue needs to be dealt with urgently as bringing some clarity to the matter is important. The Stamp Act had been massaged to where everyone was comfortable with it, and now we do not know what is going on.”
Mr Turnquest, though, denied that there had been any issues relating to the transfer of staff between the two agencies. He added that real estate conveyances and related tax payments were being processed by the Department of Inland Revenue as normal.
“According to the director of Inland Revenue, they have been - and continue - to accept documents and process them within the three-day turnaround time,” Mr Turnquest said. “There was probably some working out of kinks, but they are accepting documents and turning them around. They’ve not turned away anyone bringing a document or paying VAT.
“Some people are confused because they are going to the Treasury, not the Department of Inland Revenue, where the matter now resides. They’re going to have training or discussions sessions with BREA and the attorneys tomorrow [today], so hopefully that will clear some of the confusion.
“Where we have a change in the procedure or policy people become confused or there might be some misunderstanding, but we work it out. At the end of the day, a new tax regime was brought into effect on July 1 and it’s now July 4. Give us a minute.”
Another attorney expressed concern that while the Stamp Act had been passed by both houses of Parliament, the VAT Act had yet to do so. As a result, they argued that “there’s no means to pay real estate transfer tax”.
Mr Turnquest, though, clarified that the VAT Act was now also in effect after the House of Assembly on Wednesday accepted an amendment suggested by the Senate. He explained that it dealt with the word “taxable” in relation to real estate.
That term typically refers to the commercial sale of a good or service that attracts VAT, and the deputy prime minister said concerns had been raised that this could be interpreted as meaning that the real estate transaction tax applied only to “commercial sales” - meaning private transfers could be exempted from the levy. This, he added, had now been addressed.