• Realtor: Middle class paying higher tax rate than millionaires
• Urges $60,000 property tax cap to be raised to low six-figures
• And calls for further adjustments to make system progressive
By NEIL HARTNELL
Tribune Business Editor
A Bahamian realtor yesterday argued that “the freebie for the mega wealthy has got to stop” as he urged the Government to exploit the current high-end real estate boom to boost property tax revenues.
Christopher Armaly, a prominent broker and appraiser, told Tribune Business the newly-elected Davis administration should particularly seek to raise a $60,000 annual real property tax cap that results in middle class Bahamians effectively paying a higher tax rate than persons with homes valued $10m and above.
All owner-occupied homes, meaning those residences used exclusively as dwellings by their owners, enjoy a tax break on the first $250,000 of their property’s valuation. A rate of 0.625 percent is applied to the next $250,000, and this increases to 1 percent for the remaining portion of the valuation above $500,000.
However, Mr Armaly said the $60,000 maximum limit on annual real property tax payments effectively leaves a $40m property owner’s tax rate at just 0.15 percent. This is four times’ below the rate applied to the $250,000-$500,000 portion of a property’s worth.
Applying the cap to properties valued at $30m, $20m and $10m results in effective tax rates of 0.2 percent; 0.3 percent; and 0.6 percent respectively, all below the property tax rate that middle class Bahamians - who have less income and ability to pay - face on owner-occupied residences between $250,000 and $500,000.
Highlighting this as a regressive aspect of The Bahamas’ real property tax regime, Mr Armaly urged the new administration to increase the real property tax cap to at least the low five-figure/high six-figure range to ensure that wealthy citizens and residents pay their fair share in taxes.
Suggesting that the real property tax exemption threshold be increased from $250,000 to $400,000, so as to give middle and lower income Bahamians some relief, he also called on the Government to extend the Minnis administration’s VAT tax break on property sales to the same population segment.
The former government, in the 2021-2022 Budget, increased the VAT rate on property sales to 12 percent for the portion of a property’s worth that is greater than $2m. Mr Armaly, though, suggested flipping this script and extending this tax break to lower and middle income Bahamians by dropping the VAT rate on the first $100,000 of a property being sold to just 2.5 percent.
Acknowledging that he will likely “catch hell from my colleagues” in the real estate profession for making such suggestions, he argued that The Bahamas needed to break with “elitist” thinking and decision-making that has resulted in the country’s tax structure becoming increasingly less progressive and linked to ability to pay.
“You cannot tell me that someone making $60,000 to $70,000 a year is paying a greater rate than someone making millions of dollars,” Mr Armaly told Tribune Business, noting that middle and lower income Bahamians are also becoming increasingly burdened with paying 12 percent VAT on all they consume.
“Do you think $60,000 on a $40m home is enough tax? Think about that. Sixty thousand on a $40m home. It’s absolutely nothing. I understand we want to encourage investment, but if we want to do that, I, you, and everyone in our economic class should get the same rate. Why should they get the break and we get no break? We’re getting milked and milked.
“I’m going to catch holy hell, but fair is fair, and at some point we have to have principals that we have to set. The freebie for the mega wealthy has got to stop. I don’t want to sound like Joseph Stalin, but it has got to stop. It blows my mind. They got one letter, and they didn’t fight it. They turned around and ran off with their tail between their legs. They’re laughing at us, and it’s a freebie for them.”
Mr Armaly’s reference to a letter alludes to the former Minnis administration’s 2018-2019 Budget u-turn when, after raising the VAT rate by 60 percent to 12 percent, it quickly backed down on changes to the Real Property Tax’s definition of ‘owner-occupied’ property following resistance from homeowners in Lyford Cay and other high-end communities.
They vehemently pushed back against reforms that would have both eliminated the then-$50,000 tax “cap” and doubled the tax rate faced by second homeowners not resident in The Bahamas for six months per year from 1 percent to 2 percent.
However, Mr Armaly - while emphasising that the annual property tax cap should not be raised to ridiculous levels - argued that an increase into the high five-figure/low six-figure range was unlikely to drive billionaire and multi-millionaire owners from The Bahamas’ shores.
“There’s no reason why we cannot go to $100,000-$120,000 on the cap,” he argued. “I don’t think going from $60,000 to $70,000, $80,000, $90,000, $100,000 a year will make them go.” Asserting that such increases were likely “a drop in the bucket” for many wealthy foreign homeowners, Mr Armaly added that The Bahamas’ location, climate and reputation as a safe investment haven are all attractions difficult to pass up.
And, he added, many Americans view offshore real estate investments in The Bahamas and elsewhere as a critical hedge against rising inflation and potential tax increases by the Biden administration at home. “They can afford it,” he added. “They make $60,000n every 15 minutes. One click of the mouse from the stock market. That’s why I don’t think it’s unreasonable.
“Compared to other areas of the world, from what I can see on tax rates, the tax rates in the US and Canada are far higher. The last two to three Bahamian governments have concentrated on the mega wealthy; that’s all they wanted to bring in here, all upscale, all high-end. If that’s what they want, they need to pay.”
The Progressive Liberal Party’s (PLP) election campaign Blueprint promised to “ensure high-end properties pay their real property tax, and “ensure commercial and foreign-owned properties are on the register and properly valued for tax purposes”. However, there was no mention of any tax rate increases or raising the $60,000 cap.
Multiple realtors, when asked whether there is scope for generating more revenues from real property tax, typically argue against this on the basis that any rate hikes will drive buyers away and burst the current market ‘bubble’. They also suggest the Government seek to collect the $600m in outstanding real property taxes on the books first, and focus on other areas such as increasing the permanent residency threshold.
However, with The Bahamas burdened by a $10.4bn national debt currently bigger than its economy’s size, as well as another downgrade from Moody’s given its economic and fiscal woes, tax and revenue increases targeted at those with the ability to pay will likely have to be considered by the Government.
“I would think I’m getting e-mails every day on multi-million properties sold,” Mr Armaly said. “The middle class market, though, is dead. The $300,000-$800,000 market is dead. The $3-$4m, $5m, $10m and up is booming.
“I hope this government starts off on the right foot. I’d like them to raise the owner-occupied exemption threshold to $400,000, make that exempt, and I’d like the first $100,000 on the property transaction to be 2.5 percent, then pay 10 percent from $100,000 up. Let Bahamians get the benefit of $100,000 at 2.5 percent. At the high-end they’re getting the benefit of the first $2m at 10 percent. Give us the benefit too.”