The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A key Budget measure designed to ensure hotel rental pool units pay their fair share of taxation has yet to be implemented amid the wait for legislation to give it lawful effect.

Robert Sands, the Bahamas Hotel and Tourism Association’s (BHTA) president, speaking after the proposed Condo Act Hotels (Amendment) Bill 2022 was discussed at the body’s Friday annual general meeting (AGM), told Tribune Business the industry has held extensive discussions with the Davis administration to ensure its members “weren’t disadvantaged” by the extra taxation.

Predicting that 2023 “is poised to be the new record year for Bahamian tourism”, he added that the resort industry had wanted to ensure the so-called ‘minimum tax’ on hotel units placed in rental pools did not deter investment or undermine the tax breaks and other incentives/concessions available to developers and unit owners.

Confirming that the legislation to give effect to this measure has yet to be implemented more than six months after Prime Minister Philip Davis KC unveiled it in the May Budget, Mr Sands said it was a “forward looking Bill” and will not be made retroactive back to July 1 this year.

“The Government is hoping to ensure that where there are condos as part of the hotel rental pool, they’ve devised a way to figure out the minimum revenue that will be earned, which is 80 percent of the property’s real property tax,” Mr Sands explained. “That will be paid through the VAT on the room sales and rentals, and if the VAT doesn’t meet that [80 percent] threshold, the payment will be made as real property tax.”

The minimum threshold was set at 75 percent when unveiled by Mr Davis in the 2022-2023 Budget. The “minimum tax fee” - equivalent to 75 percent of the subject unit’s assessed value for property tax purposes - was billed as a means to extract revenues from condos, apartments and other high-end real estate that are normally exempt from that levy under the Hotels Encouragement Act levy because they are placed in hotel rental pools.

The Prime Minister explained that this “minimum tax fee” will only kick-in if the unit’s real property tax value is greater than the VAT levied on the rental income generated. This meant, Mr Davis said, that if a property was assessed for $100, for example, and failed to generate VAT equivalent to or greater than this value, its owner would pay $75 as the “minimum tax fee” to the Government.

“We are trying to close the loopholes we have, and for high-end properties this is one way of doing it,” Mr Davis told the House of Assembly during his Budget presentation. “We are now imposing a minimum tax fee of 75 percent of the real property tax assessment for high-end properties, which are exempt from property tax because they are in a rental pool, if these properties do not generate VAT revenue equivalent to the real property tax assessment.

“If part of a rental pool, and your condo and apartment is being rented, we expect VAT to be paid on the rental.” The “minimum tax fee” will likely capture unit owners in high-end mixed-use resort developments such as Albany and Baker’s Bay, where such properties are placed into a rental pool and leased out to other visitors when the proprietor is not there.

Several observers have argued that there has been an increasing trend of mixed-use resorts featuring a small hotel component, but placing residential units in a rental pool, just to enable their owners access to the real property tax exemptions under the Hotels Encouragement Act. While this may stimulate investment and real estate purchases, it also means the Public Treasury collects less revenue.

Tribune Business sources have revealed that government officials privately admit capturing taxes on such arrangements is problematic because it is almost impossible to determine when such units have been placed in the rental pool and/or are being leased.

Mr Sands, meanwhile, said the Government will “use a residential formula versus a commercial formula” to calculate real property tax for this initiative. “It hasn’t been made law yet,” he confirmed to Tribune Business of the proposed Bill. “They’re still working on the legislation. The industry made a number of interventions, and a number of recommendations have been accepted.”

Declining to comment on those that have been adopted by the Davis administration, saying that should be disclosed by the Government, Mr Sands said the industry was anticipating that the legislation will move forward at some point in 2023. 

“We wanted to have a seat at the table to make sure we weren’t disadvantaged and to express the concerns of the industry because this would be another layer of expense not anticipated, and it may have had an impact on investment and the concessions hotels would have received,” he told this newspaper.

Earlier, Mr Sands had told the BHTA AGM: “We have been pleased to provide input and recommendations which have resulted in certain favourable conclusions. We recognise with the emergence of any new law, there will continue to be work to be done. However, we are pleased to have been part of the conversation.”

Other items on the BHTA’s agenda include “modernisation” of the decades-old Hotels Act and upgrades to streamline the hotel licensing process so that it is “more red carpet, less red tape”. Mr Sands said the BHTA will be working with members of its executive committee and the Bahamas Out Islands Promotion Board to develop recommendations on how the former law can be amended and upgraded.

“The reality is that Act has not been addressed for many, many years,” he told Tribune Business. “It needs to be modernised. The terminology, the type of hotels and the nuances of hotel operations are different from 30-40 years ago. We think it is time. There are a number of issues.”

As for hotel licensing, Mr Sands said the timeliness of inspections as well as licence issuance, and “the possibility of creating one designated unit” to oversee inspections were among the most critical priorities. “Right now, multiple government agencies must do inspections before the licence is granted, and we’ve made good headway in this area. More red carpet, less red tape,” he added.