The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday warned against “wringing out vacation rentals like a sponge” amid fears it is targeting any growth industry for extra tax dollars in its haste to combat The Bahamas’ debt and deficit crisis.

Bruce Raine, IPBS (International Private Banking Systems) president, told Tribune Business he had exited the Airbnb vacation rental market last June, converting his property to a long-term lease focused on the domestic market, as he could see a tax grab coming from when the Minnis administration was in office.

Speaking after Chester Cooper, deputy prime minister, affirmed that the current government intends to push ahead with plans to levy 10 percent VAT on the full rental amount rather than just the fees/commissions earned by listing platforms such as VRBO, Mr Raine disputed his assertion that the extra cost this will impose on visitors will not make The Bahamas’ uncompetitive.

“I wouldn’t say that. I think it will,” Mr Raine told this newspaper. “It’s going to push the prices right out the top..... They’re [the Government] just greedy. If they see somebody doing making a couple of dollars they want to put their hands in their pocket. It’s not right. They’re all the same. The FNM was doing it, and now the PLP is doing it. People don’t have a chance. It’s crazy.”

Vacation rentals have been a critical vehicle in providing a pathway for increased Bahamian ownership in the tourism industry, especially in the accommodation niche, which has long been dominated by foreign-owned mega resorts. The sector has also been viewed as better spreading the wealth across The Bahamas, with visitors able to book vacation rooms in multiple islands, and enabling this nation to appeal to persons seeking authentic local experiences.

Describing the industry’s impact as “fantastic”, Mr Raine warned the Government: “Don’t wring them out like a sponge. These people are entrepreneurs. I’m in a What’s App chat with a bunch of them, and to see the professionalism they have, they’ve really grown into this. Don’t kill them.

“They [the Government] think they’re getting so much money but they’re not. They’re getting by, they are living. They will kill the goose that laid the golden egg, and where do we go from there.” Any vacation rental-related VAT will be paid by the renter, not the owner, although it is unclear whether the latter will have to charge VAT if they are under the $100,000 annual turnover threshold for VAT registration.

Mr Cooper on Tuesday indicated that would be the case, adding that he hoped to have a register which will ultimately feature all 7,000 to 10,000 vacation rental properties in The Bahamas in place by the time the May Budget is unveiled in the House of Assembly.

Reiterating much of what he said at last year’s Exuma Business Outlook conference, Mr Cooper said: “I foreshadowed that the Government would look to tax in a meaningful way vacation rentals. There is already a Memorandum of Understanding (MoU) with Airbnb, and at the moment we are collecting VAT on the fee that vacation homes would pay. We are seeking to make an amendment so that the VAT applies to the entire amount of vacation rentals.”

However, the situation described by Mr Cooper was supposed to have been addressed by the Minnis administration in the original 2021-2022 Budget passed by the previous Parliament in June. It sought to extract an extra $31m annually from the vacation rental market by “levelling the playing field” as it related to taxation.

The VAT Act was changed to make clear to Airbnb and its competitors that taxes must be levied “on the full value of the rental”, rather than just the commission paid to their platforms. “We are amending the law to clarify that all vacation home marketplaces, such as Airbnb and VRBO, are required to pay VAT on rentals and commissions,” ex-prime minister, Dr Hubert Minnis, said then.

Mr Cooper also asserted that there was unlikely to be “a significant impact on demand” from vacation rental clients now having to pay an increased rate via 10 percent VAT. Instead, he described it as a “win-win”, as more formal regulation and oversight will enable Bahamians to receive government assistance to participate in the industry, thereby increasing local ownership, while the Government benefits from tax revenues generated.

Mr Cooper was yesterday backed by Ken Hutton, the Abaco Chamber of Commerce’s president, who agreed that there should be a “level playing field” on how vacation rentals and hotels are taxed. He suggested, though, that this could mean that vacation rentals are given access to the same Hotels Encouragement Act incentives as resorts, which could open a Pandora’s Box when it comes to issues such as real property tax.

“I think it’s only fair those properties being used as income-producing properties should be paying their fair share,” Mr Hutton said, adding of 10 percent VAT: “I don’t think it will make us uncompetitive. We have a very unique product here in Abaco particularly, so I don’t think it’s going to affect in any meaningful way our market popularity.

“The vacation rentals are so interconnected with the second homeowner market we have here. It is the engine of Abaco going forward. It’s more than critical. It’s absolutely critical.” Mr Hutton also suggested that the move to vacation rental registration, and oversight, could end the “free-for-all” and help alleviate the island’s post-Dorian “housing crisis” where demand has far outstripped supply.

“A number of properties are doing Airbnb type rentals daily and nightly, and two and three-day rentals, and not paying their fair share in taxes,” he added, “but the bigger issue is those houses are not available in the rental pool. It exacerbates the housing crisis here.

“So maybe putting these new requirements, stipulations in well help these properties come off the vacation market and on to the long-term rental market and alleviate the housing shortage we have right now.”