The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An Opposition MP yesterday asserted the Government is enacting “desperation” measures to crack down on tax avoidance said to be costing it $100m annually, warning: “One day the well will run dry.”

Adrian White, the St Anne’s MP, and a real estate and commercial attorney by profession, told Tribune Business that the enhanced compliance and enforcement measures confirmed by the Prime Minister during his Budget opening address threaten to “squeeze” a sector that generates significant tax revenues for the Government - especially since the economy emerged from its post-COVID lockdown.

He hit out after Philip Davis KC also revealed that planned VAT Act reforms, which require Bahamian realtors to inform the tax authorities of all newly-constructed property sales, and those involving land set to be employed for such new builds, within 30 days of closing or be exposed to sanctions equal to 3 percent of the transaction’s value, will now be extended to all real estate deals.

This is designed to ensure all Bahamas-based land, property and real estate sales are swiftly reported to the Department of Inland Revenue in the Government’s latest bid to crack down on what it alleges to be significant avoidance, and evasion, of VAT payable on such transactions. Mr Davis admitted that previous efforts to close loopholes, and bolster compliance, produced “disappointing” results.

“In previous Budget communications and statements to this House, I have spoken about the under-performance on VAT on real estate. I have also introduced a variety of measures to address this under performance, including an amnesty and modernising the system to collect VAT on real estate. The results have still been disappointing,” the Prime Minister asserted.

“From the public utterances of the real estate professionals, the Ministry of Finance has estimated that the Government is being deprived of about $100m a year in annual revenue with most, if not all, related to foreign purchases of Bahamian real estate. In this Budget, we are proposing a comprehensive set of measures to address this leakage.

“The most obvious form of leakage is under-reporting the transaction value. In the past we did not have the tools to identify under-reporting. However, with improvements in our processes we can identify under-reporting pretty accurately. The proposed amendment to the VAT Act provide penalties for under-reporting including, in the most extreme cases, an application to the Supreme Court for forfeiture to the Treasury.”

Detailing other measures contained in the legislative package tabled in the House of Assembly alongside the 2025-2026 Budget, Mr Davis said the 30-day deadline to report all newly-constructed sales to the Department of Inland Revenue, together with the associated penalty for non-compliance, will now be extended to all real estate deals through changes to the existing Bill.

“Another loophole is structuring the transaction to disguise the transfer of ownership,” the Prime Minister added. “For example, putting the property into a Bahamian company, which is owned by a company in another country and then transferring shares of the parent company.

“The reality is that these transactions would not be possible without the involvement of real estate professionals. Hence the amendment to the VAT Act requires professionals to report on all transactions. While the current amendment speaks to new construction, prior to passage this would be adjusted to speak to reporting on all transactions.

“Finally, there are still too many transactions which are not recorded. We are proposing an amendment to make recording land transactions in the Registry of Records mandatory. This aligns with the work we are doing with Land Reform.” Tribune Business has reported on all these reforms, and their implications, over the past week.

Mr White, though, argued that the wide-ranging measures signalled the Government’s “desperation” for increased tax revenues while disclosing that he is unaware of anyone - buyer, seller, realtor or attorney - who has actually been caught and/or prosecuted for deliberately falsifying, or under-reporting, the value of real estate transactions to avoid a portion of the due VAT.

He added that complications are frequently caused by Department of Inland Revenue challenges, and queries, over transaction values and the amount of VAT - which is often split 50/50 between buyer and seller - that is due. The St Anne’s MP said the tax authority frequently compares sales prices to the ones it has from real property tax assessments, the latter of which are often over-valued, leading to disputes.

“It’s desperation because they are in desperate need of money,” Mr White told Tribune Business of the real estate-related VAT reforms, “and the day will come when real estate transactions may slow down or market values slow down. Then they’ll have to cut back on their spending, because one day the well may be too dry for the PLP administration to survive.

“It can’t depend on this source to constantly fund them. If the money is not coming in, it’s not because the people are not there; they want to come in.” Mr White added that, in his experience, most real estate sales take place at “market value”, and there is no under-reporting, but issues arise when the Department of Inland Revenue holds to its real property tax assessment figures that are often higher.

“The issue with all the VAT, and looking at ways to squeeze more from an industry that has been providing for them, if they keep doing it the well may run dry,” Mr White reiterated. “They have a thirst that is out-pacing supply. 

“They seem desperate, and are making insinuations against realtors and attorneys as though they are not putting all the true details in their contracts and instruments. I’ve not heard of anybody who’s been prosecuted for such a claim [under-reporting], or identified in the House of Assembly or elsewhere, and evidence brought to show it’s worth more. That’s not fair, that’s not right, and it’s not good for business.”

Realtors yesterday questioned again why the Government is placing the compliance burden on them, rather than attorneys, given that the latter handle the purchase price payment and all paperwork relating to the closing including the conveyance’s signing, execution and recording in the Registry of Records along with the appropriate VAT payment.

David Morley, Morley Realty’s broker/owner, told Tribune Business that the Government appeared “to be overreaching by squeezing the real estate agents to try be involved with two aspects of a sale that they have no influence or involvement in” - the closing and the deed recording.

Emphasising that he was not trying to pin blame on attorneys, Mr Morley explained: “Once the business terms of a sale are agreed, the real estate agent moves to the sideline, handing off the transaction to the lawyers to complete and, once completed under law, then the real estate agent gets compensated for their services.

“So is it equitable in law to hold the real estate agent and attorney jointly and severally liable if the attorney does not pay over, or the buyer instructs its attorney not to pay over, the VAT transfer tax. It appears to be another opportunity for government to be overreaching by squeezing the real estate agents to try be involved with two aspects of a sale that they have no influence or involvement in.

“Furthermore, once a sale is completed then the real estate agent’s contract with the seller is completed.” Mr Morley said he had “no issue” with other elements of the VAT Act reforms that will effectively make taxes on real estate sales the ‘priority payment’, or preferred creditor’, ahead of the attorney’s fees - usually 2.5 percent of the purchase price - and the 6 percent realtor’s commission.

“What appears to be unfair and unreasonable is being held liable after the attorney pays us a commission. Are we now required to hold the attorney accountable and ask for evidence of payment?” the Morley Realty chief added.

Mike Lightbourn, Coldwell Banker Lightbourn Realty’s president, told this newspaper of the Government’s moves: “All I have to say is it just sounds utterly ridiculous.... It’s just more work and is unbelievable. I’m not trying to give the attorneys more work to do, but they handle the funds; we don’t. They’re going after the wrong people. I’m not trying to go after the lawyers, but they handle the money.”