By Neil Hartnell
Tribune Business Editor
The government is “conservatively” estimating it will realise between $8m-$10m per year from levying VAT on vacation rentals as it was warned not to “throw away dollars in going for nickels”.
Marlon Johnson, the Ministry of Finance’s acting financial secretary, told Tribune Business that the revenue yield could be considerably higher as it was still “trying to get a feel for the size of the market”.
Describing the $8-$10m as “a fairly conservative estimate”, he added that the government was still in the process of contacting online vacation rental websites and marketplaces to ensure they became VAT registrants so they could collect and remit the 12 percent levy on its behalf.
“We have been engaging marketplaces already, and they’re very familiar with the protocol of taxation and pay taxes around the world,” Mr Johnson said. The VAT Act requires that the tax be paid on all goods used, consumed or benefiting persons in The Bahamas regardless of whether they are supplied from outside.
The long-awaited imposition of taxation on Bahamas-based vacation rentals was confirmed by KP Turnquest, deputy prime minister, when he unveiled the 2019-2020 budget in the House of Assembly.
Acknowledging that vacation rentals provided an opportunity for Bahamians to obtain an ownership stake in the tourism industry, and spread the wealth among entrepreneurs and communities that traditionally have had little contact with tourists, Mr Turnquest nevertheless said the sector needed to pay its fair share to maintain services and infrastructure.
“We are mindful of the uneven playing field that this has created concerning hotels and have moved to level the playing field,” he said. “As such, all online marketplaces that advertise and facilitate vacation rentals in The Bahamas will now be required to pay VAT on their rental and related sales in The Bahamas.
“Thus companies such as Airbnb, HomeAway, VRBO and all such marketplaces with short-term rentals in The Bahamas will be required to pay VAT. I can advise today that some of these online marketplaces have already become VAT registrants and have been paying VAT, and we are in the process of ensuring that the outstanding e-commerce service providers are made compliant.”
Bruce Raine, International Private Banking Systems’ (IPBS) principal and a prominent vacation rental owner, yesterday told Tribune Business that Airbnb had been levying VAT on the $20-$30 it charges Bahamian homeowners to promote their properties since May.
“If you look at the database of VAT payers on the Government’s website, their supposed to list their settlement or city, but for Airbnb it’s blank,” he said. “It’s ridiculous. They’re always jumping ahead of the legislation.
“I don’t think the Airbnb guest is going to automatically say they don’t mind paying 12 percent extra. They’ll look for somewhere else. What happens if you want to keep the business? The poor Bahamian is just going to have to drop their price again. It’s all dropped on the small man. That’s the Government’s position: take it off the small guy.
“The Government wants to take more from the little bit they earn. If they get $10,000, $15,000 a year with Airbnb that’s a lot of money and the Government wants to dip their hand in it.”
Mr Turnquest yesterday said vacation rental owners and their operations will not be impacted by the Government’s taxation plans, as all the work - administration, collection and remittance - will be done by the website operators.
However, Mr Raine voiced fears that VAT’s imposition could make Bahamas-based vacation rentals uncompetitive on price with those in rival nations, resulting in a loss of business that could stunt development of a sector that has been growing rapidly.
“Our competitors in the Cayman Islands, Jamaica, BVI; they’re all over the world, even in Florida. Are they paying VAT?” he asked. “We’ve got to remain competitive with the world. They want to talk about this WTO stuff, but they’re going to wipe us out before they get there. I have to keep my prices competitive.
“It’s going to kill the people, and the people in it are not wealthy people. They’re poor Bahamians renting a room out in their homes. There’s a lot of other ways to find money out there... There’s a lot of business that comes with Airbnb guests; they’re in the grocery stores, liquor stores and rental cars. It will kill a lot more than just owners.”
Matt Aubry, executive director of the Organisation for Responsible Governance (ORG), which commissioned an Oxford Economics report that identified vacation rentals as a sector that offered possibilities to grow and diversify the economy while creating Bahamian ownership, urged the Government to ensure its tax plans do not “throw the baby out with the bath water”.
Acknowledging its interest in ensuring a taxation “level playing field” with the hotel industry, he added that the Government also needed to examine how it could incentivise vacation rentals and their links to other Bahamian sectors such as light industries and agriculture - especially in the Family Islands.
“We have to make sure we’re not going for nickels while throwing away dollars,” Mr Aubry told Tribune Business, adding that vacation rentals needed to be viewed “as a really important opportunity for the Bahamian economy, as it opens the door for Bahamian ownership in tourism and we should look at ways to grow and incentivise this market.
“Along with a tax what kind of incentives are we going to put together? We don’t want to see it as a short-term gain. We want to see this as something that leads to growth that is sustainable and facilitates local economic development. We can’t see this as a way to fill gaps in this Budget cycle.”