The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Government is aiming to slash the portion of its debt held in foreign currency by more than 50 percent, a Cabinet minister said yesterday, as he reaffirmed the key components of its liability management strategy.

Senator Michael Halkitis, minister of economic affairs, addressing the weekly media briefing at the Prime Minister’s Office said the Davis administration wanted to reduce the percentage of national debt denominated in foreign currency from the present 45 percent level to as low as 20 percent of the overall mix.

This would reduce the pressure on The Bahamas’ external reserves and foreign exchange earnings to finance payments to overseas creditors. Affirming that the Government is “targeting three main things” with its debt management strategy, Mr Halkitis said: “We want to get back to a point where it’s more 70-30/80-20 in favour of local to foreign” denominated debt.

He added: “Secondly, we want to manage our maturities so that we are not faced with a situation where we have a whole lot of maturities coming due and it’s unmanageable. And the third thing is to manage the cost, and so how do we manage the whole structure so we can minimise the cost.

“It’s those three things: The foreign currency to Bahamian dollar mix, getting your optimal maturity so that you know you’re not faced with a whole lot coming to you at one time and it becomes difficult for you. So that is the strategy.”

To manage those maturities, Mr Halkitis said: “So the strategy is we have the sinking fund, which is an amount of money put aside every year. So that whenever the time comes, for example, if you have a $500m loan coming due or a bond, the idea is to put a little bit aside every year for the Budget year, so that when the time comes to repay that you’re not left with having to come up with $500m but you have something in a sinking fund, putting something away to go towards it.”

Asked whether this year’s Budget was designed to “tax the rich”, Mr Halkitis responded: “Listening to the [Budget announcement], I leaned over to my colleague and said this sounds so wonderful and there are standing ovations for the first time, but we must execute.

“It’s not so much targeting the rich, but our strategy has always been when we talk about revenue administration, is making sure that those who owe the Government and those who can pay, do pay. We had a cap on real property tax, so no matter how big or how much your owner-occupied home is valued, the maximum you could pay is $60,000. To put it in some perspective, to get a real property tax bill for $60,000 your house must be worth $9.6m.

“We have raised that cap to $120,000, because the view is that when you get to those levels and you do it in comparison to a Bahamian living in an $800,000 or $1m home, comparatively the person in the low value home is paying more, so when we talk about fairness we said we will move the cap from $60,000 to $120,000. For someone to pay $120,000 in property tax, their home must be worth $19.3m, so we think that is equitable.”

Real property tax revenues remain almost 40 percent below the $280m in total annual billings, even though they are projected to increase by 6.7 percent in the upcoming fiscal year to $169.4m. The Government is now planning 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 the latter levy because they are placed in hotel rental pools.

“There has been an issue where we’ve had individuals putting condos or apartments in rental pools and they’re able to access the homeowner’s exemption through the Hotels Encouragement Act, getting an exemption from real property tax,” Mr Halkitis said. “We were not earning any revenues from room tax.

“That’s an attempt to close the loophole so we should get something on the rental (room tax), and if not we will get something from real property tax.” The Prime Minister, in unveiling the move in Wednesday’s Budget, said 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, Philip Davis QC said, that if for example a property was assessed for $100, 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. “There is a cap on real property tax. We are going to increase that cap from $60,000 to $120,000. To reach that level, your house has to be valued at over $20m.

“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.

“To demonstrate that we are serious about collecting property tax, we are updating the law to simplify the process by which we can take action against all classes of property owners, with the exception of Bahamian owner-occupied properties.”