The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government should allow the corporate real estate market to “settle down” before seeking to tie Business Licence renewals to property tax compliance by commercial landlords, a prominent realtor argued yesterday.

Donald Martinborough, Bahamas Realty’s chief executive, told Tribune Business the latest tax enforcement crackdown was “a bit aggressive” given that many building owners were still getting over 2022’s skyrocketing real property tax bills that increased by up to 400-500 percent in some cases.

While applauding the Davis administration’s intent to ensure all taxpayers pay their fair share, he explained his main concern was the “timing” of such a move and said he would have preferred that the market be allowed to “stabilise” following the multiple challenges to last year’s revaluations.

Meanwhile, Mark A Turnquest, a consultant and president of the 242 Small Business Association Resource Centre, voiced concerns that the Government’s plans to “garnish” or take a lien over rental income paid to delinquent taxpayers will introduce “chaotic” complications into the relationship between commercial landlords and their business tenants.

While not objecting to the Department of Inland Revenue collecting taxes that are due and owing, he argued that it needed to develop a better mechanism for doing so as opposed to inserting itself into the landlord-tenant relationship. Mr Turnquest said he was particularly concerned whether, if the Government took all or a portion of rental payments to satisfy real property tax arrears, the landlord could then deem their tenants to be in breach of the lease agreements.

Both men spoke out after Tribune Business revealed that 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.

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.

Mr Martinborough, though, questioned what would happen in the case of a property he was familiar with which had received two separate real property tax bills with different assessment numbers. “When we contacted the Department of Inland Revenue’s real property tax unit, they said they would have to research that and go out there and go through it with management to sort it out,” he recalled.

“We said: ‘There’s nothing to sort out. We pay our taxes, and we’ve received two bills with different assessment numbers for the same property’.” Mr Martinborough argued that it would have been better to delay linking Business Licence renewals to real property tax compliance by commercial landlords due to the upheaval created by last year’s revaluations that produced huge tax hikes and multiple challenges by aggrieved taxpayers.

“There was a lot of push back and rightly so,” he said, noting that the Department of Inland Revenue had made the necessary adjustments to commercial property valuations for 2023. Taxpayers who successfully challenged their 2022 valuations have received “a rebate or credit” on their latest bills

“We want to make sure their correct,” Mr Martinborough said of the 2023 valuations, “but then to be hit with this. I just think it’s unfair when we are going through all these adjustments. Do it when the system is stable. It’s just that the timing is not great. I understand the intent but the timing is bad, although I could see it coming. My objection is that they should have slowed it down.

“It’s a good thing that business people and landlords pay their taxes. The concept of this is good. But last year was a tough year, when many of the valuations were out of left field. They adjusted it, great, but they have to let things settle down and to tie it to Business Licences at this time is a bit aggressive.”

The Bahamas Realty said the move also had to be assessed against the backdrop of multiple economic and inflationary pressures. “I’ve never seen inflation so bad in so many areas. Where does it stop?” he asked. “Increases of 30-40 percent are on a lot of things, and it does take its toll on the middle class. I’m worried about the long-term effect of all these things. There comes a point when the straw breaks the camel’s back and people can’t pay these things.”

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.

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.

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.

Mr Turnquest, who yesterday revealed that virtually all his small business clients and members lease their premises, voiced particular concern over the Government’s plans to “garnish” rental income paid by tenants to settle their landlord’s real property tax debts.

“It’s difficult for small businesses to be put in that position,” he argued. “If we cannot get our Business Licences then what happens? We will be closed down. I don’t feel as if that’s a good position for the small businesses to be in. If the landlord has not paid their property taxes, that is going to be very complicated.

“I have no problem with the Government getting their taxes, but they’re introducing another layer of work for us small businesses. What system will be put in place for us? I hope the Government has an alternative mechanism in place to receive their tax money. That is now another burden on small businesses. There are severe legal ramifications.”

Mr Turnquest queried whether, if the Government “garnished” or seized a tenant’s rental payments to settle their landlord’s real property tax arrears, the latter could treat this as a breach of the tenancy agreement and terminate it for cause. “Our members feel we should not be put in that awkward position where we have to pay a portion of the rent to the Government,” he said.

“That’s going to have all kinds of legal and accounting ramifications because you will have to redo the lease agreement again. We are fighting for our livelihoods with inflation, crime and other negative impacts to our business. We don’t need any further negative things. This is going to cause chaotic conditions for our members and my clients as 99 percent of then have lease agreements.”