The Tribune

• Industry awaiting response from DIR

• Wants to ensure reform not ‘onerous’

• Had sought multiple clarifications

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian hotel industry yesterday asserted it is “coming close to a position we can live with” by ensuring that the Government’s ‘minimum tax’ on rental pool units is not too “onerous”.

Robert Sands, the Bahamas Hotel and Tourism Association’s (BHTA) president, told Tribune Business the sector has been seeking multiple “clarifications” over valuation methods, the applicable tax type and owner rights in relation to Budget reforms that sought to ensure high-end properties pay their fair share to the Public Treasury.

He added that the industry was now awaiting correspondence from the Department of Inland Revenue (DIR) to confirm all issues relating to the “75 percent minimum tax fee” for units placed in a hotel rental pool have been resolved with the 2022-2023 fiscal year now in its third week.

Speaking earlier at the BHTA’s quarterly meeting, Mr Sands said: “The new condo hotel tax, the proposed condo hotel tax, is currently being discussed by individual tourism stakeholders and the BHTA. This is designed to ensure that entities and individuals operating a condo hotel the Hotels Encouragement Act meet a minimum level of contribution to the public purse.”

Explaining that the hotel industry’s concerns had been discussed with, and reviewed by the Ministry of Finance, the BHTA chief added: “We are satisfied we are coming close to a position we can live with in future. We are awaiting a final communication from them [the Government] in this area.”

Philip Davis QC, in unveiling the Budget in late May, revealed the Government’s plan to impose a “minimum tax fee” - equivalent to 75 percent of the subject unit’s assessed value for property tax purposes - 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.

He 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 also 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, yesterday said there were several “cleaning up issues” that the Bahamian hotel industry had been seeking clarity on when it came to the “minimum tax fee”. He explained: “There were a number of issues in terms of definition that we wanted to have clarified.

“There were issues in terms of method and calculation. There were issues in terms of whether the commercial or residential real property tax element would apply. There were cleaning up issues, and there was an issue of valuation - not so much the whole building but the individual unit, and we were looking to ensure the owner or operator of the hotel’s rights were protected under aspects of this tax.

“It’s still a work in progress. We’ve had multiple meetings, and we’re waiting for follow-up correspondence from the Department of Inland Revenue. When the Government wants to introduce additional revenue streams in the form of taxation we want to make sure members’ interests are protected. I think today we’re in position, depending on what we receive from the Department of Inland Revenue, where owners’ rights are protected and we’re not in an onerous position.”

Mr Sands reiterated that among the issues requiring clarity were whether real property tax would be assessed on individual condo units or the entire building, and whether commercial or residential real property tax rates would apply. “That was a major issue,” he added. “The VAT, clarifying what VAT was to be paid on, was an issue. There were five or six matters that awaited clarification from the Department of Inland Revenue.

“They’ve been very co-operative and open. This has its genesis with units in a hotel pool, in a rental pool. The Government wants to be satisfied that it gets a value relating to VAT, and if it does not get sufficient VAT, a minimum real property tax based on the assessed value. If the unit is generating VAT equivalent to that, nothing is due. There was some language clean-up where the industry agitated for correction.”

Elsewhere, Mr Sands hailed the collaboration between the Government and private sector/tourism industry over the easing of The Bahamas’ COVID entry testing protocols, with the latest relaxation leading to “the eradication of most friction points, which have been pressure valves for business in The Bahamas, being eliminated and we are beginning to see sustained positive benefits to their removal”.

The BHTA also praised the Government’s efforts to create “a financial level playing field” between traditional hotels and vacation rentals when it came to the latter’s tax contribution to the Public Treasury, as they “glean benefits” from the public infrastructure financed by taxpayers.

Mr Sands said the industry was also working with the Government to provide suggestions and feedback over plans “to construct and deploy” an electronic Immigration card that can be completed online before tourists arrive in The Bahamas as opposed to filling them out upon arrival or on the plane.