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Realtor Questions Vat Break For ‘Rich’ Buyers

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A realtor yesterday questioned why the Government is effectively giving a break to “rich” overseas real estate buyers while raising VAT on the poor by taxing ‘breadbasket’ food items again.

Peter Dupuch, ERA Dupuch’s founder and president, told Tribune Business that billionaire and millionaire property purchasers - in what is the most active market he has seen in a 30-year career - would not be deterred by a two percentage point increase in the VAT rate on the transaction portion above.

The VAT Amendment Bill tabled in Parliament by the newly-elected Davis administration reverses a modest tax adjustment implemented by its predecessor just over four months ago, reducing the rate on the value above $2m from 12 percent to 10 percent once again.

While acknowledging the stimulative effect this was likely to have for an already-booming high-end property market, Mr Dupuch nevertheless also urged the Government to focus on collecting the $600m in real property tax said by the Auditor General’s Department to be outstanding instead of rewarding delinquent taxpayers with amnesties.

The recent amnesty, introduced by the former Minnis administration, collected $37.5m in tax arrears but, according to the Ministry of Finance, involved writing-off a further $61.9m that was owed in the process. This meant the initiative collected some 39.4 percent less than the sum written-off.

“I don’t agree with VAT. You’re taxing the poor people and taking two percentage points off the rich people, while taxing the breadbasket items. I don’t agree with that at all, but it’s going to do well with real estate,” Mr Dupuch said.

“They’ve got to have a little more imagination than that. It’s just so easy to tax the poor, and billionaires don’t care if they’re paying 12 percent or 10 percent. If they want to live here, they’ll live here.”

Senator Michael Halkitis, minister of economic affairs, told Tribune Business via messaged replies that the Government had chosen to remove the 12 percent VAT rate on the real estate transaction portion above $2m for administrative simplicity as part of its drive to return to a broad-based, less costly tax model. And he revealed that adding to already-high closing costs was a concern.

“Bottom line is we wanted one rate,” he explained. “Added to this are our comparatively high closing costs, but mainly we wanted the one rate for ease of administration.” The Government has also argued that the previous administration, in treating breadbasket foods as VAT zero-rated, also gave a tax break to wealthier Bahamians who could afford to pay - not just those on lower incomes.

It believes that the best way to mitigate VAT’s impact, and regressive nature, on lower income Bahamians is via more targeted social security spending rather than adding to the complexity that both the Government and private sector must endure in collecting and administering the tax.

Meanwhile, Mr Dupuch also expressed misgivings about real property tax amnesties. “They need to collect the taxes that are owed now on property instead of giving breaks to people that haven’t paid taxes,” he argued. “They need to collect the taxes that are owed. If that was a business, it wouldn’t be run like that. It’s easy to spend and waste other people’s money.”

The Government also needs to be more consistent with its tax policy, Mr Dupuch said, having gone to 12 percent VAT and now back to 10 percent within just the space of four months. “This is it. How does a guy who has just paid 12 percent feel now it’s gone back down to 10 percent?” he asked.

“It’s going to spur the market, as persons will save two percentage points right off the top, but they should be a little more consistent.”

Describing the high-end real estate market’s current state, he said: “I’ve been in this business for 30 years, and have never seen the market like this. It’s just busy; very busy. We’re running out of inventory at the high-end. The Bahamas is still the place to come, and people are coming.”

Gavin Christie, Corcoran C.A. Christie Real Estate’s managing partner and operational head, backed Mr Dupuch’s call for more consistency from the Government when it came to tax policy affecting the real estate industry.

“Consistency is always key,” he told this newspaper. “The fact it’s been back and forth, it doesn’t help the market. What we want to do is appear, and to be, as consistent as possible. Hopefully, once that change is made, it will stay that way into the upcoming future. Fingers crosses that everything will be sooner rather than later because I believe it will positively impact the market.

“I think it [the cut to 10 percent VAT] will be a huge boost. Anything that lowers the cost of the transaction would be a huge boost to the real estate market. There’s been sip sip in the market wondering when the Government is going to make the change. There’s been a positive reaction. If we can lower the transaction cost, it encourages people to buy.”

Recalling what happened when the Minnis administration unveiled the increase to a 12 percent VAT rate, Mr Christie added: “On the flip side, when the Government increased it, it created a small boom because we had so many clients trying to get in and close before it rose.

“We had clients who, when the Government made the announcement, were on the fence in terms of committing to the transaction and rushed to complete before it increased.” Now, with a rate cut in the offing, some high-end buyers may elect to delay their purchases to take advantage of the 10 percent VAT.

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