• Withheld/delayed if no property tax number
• Tenants to help target delinquent landlords
• ‘Over $20m in taxes’ if compliance rises 5%
By NEIL HARTNELL
Tribune Business Editor
Bahamian companies will have their 2023 Business Licence renewals withheld if they fail to comply with the Government’s crackdown on tax dodging commercial property landlords, it was confirmed yesterday.
The Davis administration is now demanding that all businesses provide the real property tax assessment number for the building from which they operate even if they are merely tenants, while warning that failure to do so could delay or impact the processing of Business Licence renewal submissions that are due within 27 days at January’s end.
The joint objective of the Ministry of Finance and Department of Inland Revenue is two-fold - to boost both Business Licence and real property tax revenue. By better matching business tenants to their commercial landlords, the tax authorities’ goal is to detect those among the latter who lack the necessary Business Licence for the activities they are conducting and thus clamp down on such tax dodging.
While companies have been assured that their landlord’s existing real property tax arrears will not impact Business Licence renewals, the strategy is also designed to provide the Department of Inland Revenue with information enabling it to “garnish” the tenant’s rental payments and thereby use these to pay-off debt owed to the Public Treasury by the building’s owner.
Simon Wilson, the Ministry of Finance’s financial secretary, confirmed this latest element of the Government’s tax compliance crackdown when contacted by Tribune Business yesterday. He confirmed that the Government had “stepped up enforcement” as part of its drive to “make sure people pay their fair share”, with an advertisement stating: “Real property tax assessment number of business location will be required for renewals.”
The move will impact hundreds, if not thousands, of Bahamian companies who lease - rather than own - the premises from which they operate. Retailers, restaurants and office-based businesses are just a few sectors that typically rent their locations. Some realtors and attorneys specialising in property matters yesterday revealed they had been blindsided by the Government’s latest action and were hearing about it for the first time from this newspaper.
Given that corporate tenants do not necessarily possess their building’s real property tax assessment number, since such information will typically be held by their landlord, several raised concerns over what happens to Business Licence renewals in the event that the latter proves uncooperative in providing it.
However, Mr Wilson said the requirement was not designed to be onerous. Should the assessment number be withheld, he encouraged business tenants to simply contact the Department of Inland Revenue and supply both their address/location and landlord’s name. These could then be matched with assessment numbers in the system and the New Providence-wide mapping exercise conducted for the tax authorities by Tyler Technologies.
“We have this issue about property and not knowing who owns the property,” Mr Wilson explained. “There are cases where the tenant may not know it, but they can say ‘This is where I am’ and we will be able to find it in the system. This is my location and this is my landlord.”
Questions were also raised over whether there is any lawful basis for the Government to tie Business Licences to the provision of the landlord’s property tax assessment number, and if renewals can be withheld for failing to do so. Kwasi Thompson, former minister of state for finance in the Minnis administration, told this newspaper yesterday he thought the linking of two separate taxes in such a way was unlawful but needed to check his records.
“I remember this issue coming up and debating it with colleagues,” he recalled, “and saying it was patently unfair because it puts the tenant at a disadvantage..... It seems to me not just unfair but unlawful because it’s two separate persons.”
And another source, speaking on condition of anonymity, added: “If that is not in the law I don’t know how they can mandate it and withhold the Business Licence because the two are unrelated subjects... What are the legal statutes that require the business to do it and the landlord to provide it.”
David Morley, principal at Morley Realty, one of the country’s largest commercial property managers with some 42 clients who it is now preparing Business Licence filings for, agreed it was “a very good question” whether there is any legal basis for the Government to tie Business Licence renewals and real property tax compliance together in such manner.
While the law has been amended to allow the Government to “garnish”, or take a lien, over tenant rental payments so that itself - rather than the landlord - receives the monies to settle outstanding real property taxes, Mr Morley said the latest enforcement move threatens to further complicate the ease of doing business for tenants.
“Obviously they’re continuing to make the world even smaller,” he added of the tax authorities. “When they made those amendments to the Real Property Tax Act, they made a provision in there which also allowed the Government to assess tenants directly or get the tenants to pay real property tax directly if they can prove the landlord hasn’t paid it. I guess they’re finding ways to squeeze it to make sure the real property tax gets paid.
Mr Wilson, though, described the requirement for tenants to provide the real property tax assessment number as “a legitimate information request”. He added: “We’re not asking them to pay the landlord’s property tax. We’re simply saying to them: ‘Tell us your location, the name of your landlord and assessment number.” The burden of paying the tax arrears will fall on the taxpayer, namely the landlord, through the loss of rental income being diverted for these purposes.
“This is nothing new,” Mr Wilson told Tribune Business. “It’s just that we have stepped up enforcement. The reality is that we collect around 30 percent of our property tax bills on an annual basis. Around 30 percent is not good. If this increases compliance by over 5 percent, that’s over $20m in additional revenue. Changes in compliance have an outsize effect. This is a tool that we can use. That’s all we want to; make sure people pay their fair share.”
Mr Morley, meanwhile, agreed that the latest move in the Government’s tax compliance strategy “makes sense”. He added: “They’re just trying to close all the loopholes and make sure everything is cross-referenced properly just like they did last year when they introduced the concept of, when a conveyance is stamped or recorded, it has to include the real property tax assessment number.
“What they’re trying to do is capture everything. Bahamians living in the Family Islands have said that, for the first time in their life, they got a 2023 real property tax assessment. Even though it showed no balance (Bahamian-owned real estate in the Family Islands is exempt from property tax) it gave them an assessment number. I think their intent is to capture every single piece of property in The Bahamas with an assessment number.
“They’re tightening up the belt here. It sounds pretty clear what they’re trying to do. This is another form of them capturing all commercial businesses and commercial landlords. It doesn’t surprise me what the Government is doing. They’re trying to make sure everybody is not only being taxed but recorded. They’re trying to capture all opportunities to make sure they don’t miss out on any real property tax that is owed.”
The real property tax assessment number just adds to the information that Bahamian businesses will now be scrambling to put together ahead of the January 31 deadline for the filing of Business Licence renewal applications. Those with annual revenue greater than $100,000 must have the figures verified by a licensed accountant.