• Inland Revenue focusing on 10-20 year deadbeats
• Aims to publish first seized properties list early June
• Last resort measure for taxpayers just 'not checking'
By NEIL HARTNELL
Tribune Business Editor
The Government is "targeting extreme cases" who have totally disregarded their tax obligations for up to 10-20 years with yesterday's warning that it will start to seize and sell-off their properties to recover all arrears owed.
John Williams, the Department of Inland Revenue's communications chief, told Tribune Business that the notice revealing it now plans to exercise its "power of sale" enforcement tool to recover outstanding real property taxes was published because the tax authorities plan to reveal the "first list" of targeted properties and real estate in early June 2023.
Although the notice's disclosure caused some alarm and disquiet, he reassured that Bahamian owner-occupied properties are excluded from the "power of sale" by the Real Property Tax Act. And, while the notice referred to taxpayers who have been in arrears for more than seven months, Mr Williams explained that timeframe was detailed only because it is stated in the Act.
In reality, he told this newspaper that the Department of Inland Revenue is targeting long-standing bill duckers and tax cheats who have ignored all prior outreach efforts, tax amnesties, notices and communications urging them to bring their real property tax liabilities current and comply with the law. He described the focus of the "power of sale" effort as persons who are "not checking for it, and just walking by and not having any regard" for paying their fair share.
The Department of Inland Revenue's notice, warning locals and residents that it plans to use its "power of sale" to recover outstanding real property taxes, caused a political storm yesterday (see other article on Page 1B) as many interpreted it as applying to all taxpayers - including Bahamians residing in their own homes - and short as well as long-term arrears given the reference to seven months.
However, Mr Williams told Tribune Business: "This would be the final step with regards to persons who are not paying or have not paid in a while. The notice says seven months, but that's only because seven months is stated in the law. Really and truly, we are targeting extreme cases of persons in arrears for 10 years, 15 years, 20 years.
"Persons seem to think this is something new, but the 'power of sale' has been in the Act from 2009. The most recent amendment came in July last year. The only exception is Bahamian owner-occupied property." The Real Property Tax Act reforms passed to accompany last year's Budget sought to "expand the exercise of the power of sale for tax arrears to all property except owner-occupied property beneficially owned by Bahamians".
This made clear that the tax authorities cannot seize, and sell, Bahamian-owned residential property that the owners are living in. This was likely done to ensure Bahamians are secure in their own homes, and also possibly with one eye on votes. Yet with the real property tax exemption threshold now increased from $250,000 to $300,000, many middle income Bahamians - as well as those earning lower incomes - are paying no tax at all and not affected by the latest move.
Still, the wording of the Department of Inland Revenue notice - stating that delinquent commercial, residential, foreign-owned land and foreign-owned owner-occupied properties - would be subject to the 'power of sale' appeared to cause confusion for some. Many appeared to interpret "residential" as including Bahamian-owner occupied properties, even though these are protected by law.
However, "residential" applies to duplex and triplex-type complexes that are rented out by their owner landlords who do not live on property. Mr Williams said the Department of Inland Revenue's notice was intended to reinforce, and drive home the message, that the Ministry of Finance and its agencies are serious about collecting all past due tax arrears and will use every measure in their arsenal to achieve this.
"These are really extreme cases," he reiterated. "For situations like this, they would have received bills, notices, communications to come in with no response, and as a result we have no option. We're at this stage. The notice is out there because in another couple of weeks, some time in June, we'll officially put out the first list of properties that will be under the power of sale."
Shunda Strachan, the Department of Inland Revenue's acting controller, last month said outstanding real property tax arrears had risen to a collective $600m. Mr Williams, though, yesterday said he was unable to say how many properties will be included on the 'power of sale' list, or the total amount of past due taxes they represent, because the list is still being refined as persons are provoked to come in and either settle their obligations or agree a payment plan.
"We want persons to come and understand they need to pay their taxes, and the Government is definitely serious and they are acting on it," Mr Williams told Tribune Business. "It's the extreme cases. We're looking at 10 years, 15 years, 20 years. We don't want to do some of these things, but if you're not checking for it, you're just walking by with that and not giving it any regard, we have to take certain measures."
He agreed that The Bahamas must do more to foster a tax-compliant culture among tax-paying businesses and homeowners, saying: "We have to establish that culture, and even if it's a situation where we have to start from a young age and have it introduced in our schools so that when they become adults they know that paying taxes is part of normal and adult life.
"We have to get used to paying. When we travel throughout the world we pay taxes without trouble." Mr Williams added that Bahamians need to equate the payment of taxes as fostering improvements to public infrastructure and other aspects of daily life, as it would lead to "the betterment of the Government, the country and everybody that thrives in The Bahamas. We have to have a little bit of comfort with paying it".
The Government is thus seeking to reverse decades of lax and/or selective tax enforcement and compliance through increasingly aggressive measures as it seeks to narrow, and ultimately close, the space that tax dodgers and operators have been able to operate in for so long. Many taxpayers have come to view non-payment as having no consequences, and as a result treat compliance - paying in full, and on time - as optional.
Many observers, though, believe the Government is being forced to do so, and is only acting now after the $3bn-plus debt blow-out produced by Hurricane Dorian and COVID-19 merely accelerated existing woes by taking the national debt to over $11bn at present. As a result, the Ministry of Finance and its agencies are especially eager to gain every cent due and owing to the Public Treasury.
The 'power of sale' warning notice follows the Department of Inland Revenue's move, begun last month, to garnish the bank accounts of delinquent tax-paying companies and especially those that owe VAT. That is a tax paid by consumers, rather than VAT registrants, who act as the Government's collection agents in remitting the monies to the Public Treasury. As a result, they have no good reason to hold on to these funds or use them for operational purposes in the business.
Mr Williams said the garnishing was "not necessarily a freeze" but more imposing a hold over the accounts of delinquent companies with significant tax arrears. Notices to effect this are being sent out to the relevant financial institutions and, in cases where businesses do not respond, funds are being garnished and remitted to the Department of Inland Revenue.
Once the arrears are paid off, or a payment plan agreed, the hold is removed. "Sometimes when businesses get this notification from the bank, the bank advises them to contact us, and sometimes they are able to resolve the situation immediately with us, so that would be the end of it right there," Mr Williams explained. "They're holding it [the VAT collected] or not reporting it properly."
The Department of Inland Revenue is thus making good on Ms Strachan's promise last month that it will now implement its enforcement tools such as garnishing and 'power of sale'. Referring specifically to the latter, she said at the time: "The Act really allows for the Department of Inland Revenue to sell all properties, except properties that are owner-occupied and owned by Bahamians. That's a big.... that's a big power that we have.
"Now, it's also one that we have to use very carefully. And so it has taken us some time to get to this point. But we are at this point where we will begin to initiate power of sale auctions. It's not only foreign-owned properties that the Department has the right to initiate power of sale on. And so we have given property owners a very long period in which to satisfy or to get their real property tax obligations, I guess, in check.
"And so we are now at the point where we are moving to 'power of sale'...... I think the power of sale is going to be in the next month. You're going to see some things. We were supposed to set up our 'power of sale' tab on our real property tax website. So when that goes live, then you know it's show time; it's business time. There again, we're not only dealing with foreign-owned properties, but there are quite a number of Bahamian-owned commercial buildings," Ms Strachan added.
"There are residential properties, and I say residential in that you may have a property owner who owns a four-plex or duplex, but they don't reside there." Ms Strachan reassured that the Department of Inland Revenue will not be using the seven-month arrears period that triggers the 'power of sale' as set out in the Act.
"We have accounts that have never been paid," she added. "Right, and I'm talking about large buildings, apartment complexes. But the key for us will be as long as the owner does not reside at that location. And the taxes are in arrears. For a couple of years or more, I will say that I won't use the seven months, but we're not going to use it lightly. It's a serious act when you move to power sale. But it will be serious cases, and I would say any account that is in arrears or more than five years is fair game."