• Top Finance official optimistic on tourism, tax trend
• Property taxes to rise $54m; web shops up by 78%
• Ex-finance minister fears revenue forecasts ‘optimistic’
By NEIL HARTNELL
Tribune Business Editor
The Ministry of Finance’s top official yesterday predicted the Bahamian economy will regain 80 percent of its pre-COVID capacity by June 2022 with key taxes forecast to rise by a similar magnitude.
Marlon Johnson, the acting financial secretary, told Tribune Business improved tax revenue flows over the past four to five months - together with the vacation rental market’s return to 70 percent of pre-COVID business levels and signs the tourism plant is “gearing back up” - meant he was “very confident” the economy will return to four-fifths of pre-pandemic output in a year’s time.
His optimism came after a closer study of the government’s 2021-2022 revenue forecasts revealed it is projecting a 51.5 percent year-over-year increase in real property tax collections, together with a 77.5 per cent hike in taxes paid by the web shop gaming industry
Real property tax revenues are projected to increase by more than $54m to over $158m on the strength of greater enforcement and improved administration, while web shop gaming revenues are forecast to jump by $17.9m to $41m largely on the basis of the Government finally implementing the long-awaited tax on patron winnings.
Zhivargo Laing, minister of state for finance during the 2007-2021 Ingraham administration, was yesterday among those suggesting that the 2021-2022 Budget’s revenue projections were “optimistic” given the extent of the economic and fiscal crisis produced by the twin blows of Hurricane Dorian and COVID-19.
“Whether the Government can meet its expenditure depends on two things,” he said. “It depends on the revenue it collects, and the government is projecting an increase in the level of revenue collection, but I have my own concerns on whether those forecasts are a little more optimistic than they need to be.
“But it’s all future, so I don’t know and no one else knows. It is what the Government says, and the Government might have more insights as to why it has a particular revenue projection than I would have. If the revenue doesn’t come in the way the Government expects then it does have the ability to withhold on some expenditure it may have planned to do. So there is some control there.”
Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business he felt it would be “a challenge” for the Government to hit its $2.244bn revenue target for 2021-2022 - a near $600m on the current fiscal year - by achieving an almost three percentage point increase in revenues as a percentage of gross domestic product (GDP).
He also questioned the projections showing GDP in current prices (which includes inflation) increasing by more than $1.5bn, from $10.806bn in the current fiscal year to $12.326bn in 2021-2022, despite the economic devastation inflicted by COVID-19. “There are no projections anywhere as aggressive as that,” Mr Bowe said, as the increase keeps the deficit equal to 7.7 percent of GDP.
When challenged on whether the Government’s revenue projections were too optimistic, and that any underperformance could result in it overshooting its $951.8m deficit target and incurring even more debt that the country can ill-afford, Mr Johnson replied that the Minnis administration had “carefully looked at the numbers” before setting out its forecasts.
He added that, even if revenues missed projections, the Government had established this fiscal year that it can adjust its financial plans to conditions and still meet its deficit target. For 2020-2021, the Ministry of Finance slashed its capital budget in response to the need to expand social welfare assistance beyond initial projections as a result of the COVID-19 pandemic.
Voicing optimism that the Bahamian economy will have “caught up to 70-80 percent” of its pre-COVID capacity in time for the start of the 2022-2023 fiscal year, Mr Johnson said: “Barring the unforeseen, and assuming we don’t have any natural disasters that derail us from our path, based on what we are seeing - and provided people get vaccinated at a reasonable clip - I feel very confident we will meet that mark”.
He added that the Government’s revenue flows, at least compared to 2020, had been “very healthy” for the four to five months leading into the current fiscal year’s fourth quarter, while tourist arrivals based on health travel visa data “continue to tick upwards”.
“It portends that the tourism plant is gearing back up,” Mr Johnson said. “It’s still nowhere near to full capacity, but is trending in the right direction. From the Airbnb numbers that we get, we’ve seen it’s at 70 percent of what it was in March 2019 pre-COVID. It is steadily increasing.
“That is just one indicator, but there’s signs the traffic is picking back up and the domestic economy is picking back up. Providing we continue vaccinations at pace, and barring no unforeseen natural disasters, we feel very confident the economy will get to that point.”
The Government is forecasting significant real property tax increases across all categories. The crackdown on deadbeat commercial property owners, by forcing their tenants to pay their rent to the Department of Inland Revenue until the debt is settled, is predicted to raise revenues in this class from $35.492m in 2020-2021 to $53.232m in the upcoming fiscal year.
The work of US-based Tyler Technologies, in adding 14,000 properties worth a collective $9bn to the tax roll, and the requirement for homeowners to inform the Department of Inland Revenue when they shift their property to a rental, is also forecast to drive real property tax revenues in the owner-occupied and residential categories.
Owner-occupied real property tax is forecast to more than double, from $20.444m in 2020-2021 to $41.944m in the new fiscal year, while residential real property tax will jump from $15.788m to $27.893. Much of that will be due to the extra $14m said to have been gleaned by Tyler Technologies’ work, as well as additional compliance measures foreshadowed by Mr Johnson although he gave no details.
Challenged on why the Government was not using existing law, which permits it to seize and auction-off properties upon which substantial real property tax is owed, the acting financial secretary said such measures were equivalent to “the last chance saloon”.
Indicating that the Government preferred not to go to such extremes, Mr Johnson said the present Real Property Tax Act allows the Government “to garnish the rent” if taxes are owing and the amendments to the Business Licence Act introduced with the Budget merely clarify the framework under which a tenant in such properties must pay their rent to the Department of Inland Revenue.
Tenants will not have their Business Licences renewed if they fail to comply with this requirement and, when it was suggested by this newspaper that such a move was likely to be challenged in the courts, he replied: “We feel confident the Attorney General’s Office has taken that into consideration.”
Mr Johnson urged delinquent commercial property owners to instead step forward and work out payment plans with the Department of Inland Revenue to avoid the sanctions that will be forthcoming under the Act.
As for the hike in web shop gaming houses, he added that the Attorney General’s Office had been advised that litigation currently blocking implementation of the patron winning tax - which is projected to generate between $10m-$15m in extra revenue annually - will be resolved shortly.
“That really is the full year effect of the patron winning tax,” Mr Johnson said of the year-over-year revenue rise from $23.1m to $41m. “That’s what influences that particular bump up. Our anticipation is that the ongoing legal matter will be resolved soon, and at the beginning of the fiscal year or shortly thereafter we will be able to rely on that revenue.
“We’re really in the hands of lawyers at the Attorney General’s Office, but are advised that the matter is expected to be resolved fairly quickly and they are actively pursuing it. That’s the basis of our projections.”
Tribune Business understands that the litigation in question may have been initiated by a patron or group of patrons opposed to the tax, rather than the web shop operators themselves as the Ministry of Finance previously indicated.
The new tax will see a five percent levy paid by patrons on winnings up to $1,000, and 7.5 percent on anything greater than $1,000.