The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian middle class is being “taxed into oblivion” by real property tax bill increases of between 200-500 per cent, a well-known realtor has warned.

Christopher Armaly, a realtor and appraiser with Morley Realty, told Tribune Business that the huge rises seen over the past three years threatened to further depress the housing market, plus residential and commercial income-earning properties, along with associated industries such as construction and home furnishings.

Arguing that “you can’t get blood from a stone”, Mr Armaly said that while he agreed with the Government’s objectives and targeting of real property tax as an underperforming revenue segment, its approach was totally wrong.

He told Tribune Business that the Real Property Tax Department was focusing on homeowners and residential/commercial landlords who were already paying, rather than going after ‘bill duckers’ or properties either undervalued or not on the roll.

Such an approach, Mr Armaly argued, was counterproductive in that the huge increases would disincentivise compliant taxpayers from continuing to pay. And the Government would earn less revenue.

“They’re going after people already paying as opposed to those who don’t pay or have no interest in paying,” Mr Armaly told Tribune Business. “They’re going after them hard - 200 per cent, 300 per cent, 400 per cent, 500 per cent increases in some cases - and they’re taxing the middle class into poverty.

“They just don’t have it. People don’t have $4,500 to pay in taxes when they’re making $50,000 a year. If you’re making $100,000 a year, can you afford to pay 5-10 per cent of it in taxes? With the cost of living, they can’t afford it.”

Mr Armaly said the impact of the real property tax hike, and constant Treasury queries over Stamp Duty payments, were beginning to make themselves felt in real estate transactions.

“There are agreements coming into effect when we do sales, saying: ‘This is pending real property tax and the Treasury accepting Stamp Duty on the purchase price’. It’s killing deals,” he told Tribune Business.

Mr Armaly suggested that the Real Property Tax Department was being over-zealous in its response to the Government’s fiscal crisis and “20 years of neglect” when it came to enforcing/collecting on its specific revenue stream.

Arguing that a more “reasonable” approach would likely yield greater revenues for the Treasury, the Morley Realty executive showed Tribune Business several examples to illustrate what was happening.

While no names are revealed to protect people’s confidentiality, Mr Armaly cited a client who lived in an eastern New Providence area close to Eastern Road. Data from the Government’s own Land Registry showed that all real estate sales in the area from 2008 onwards had been at values between $300,000 and $435,000.

Mr Armaly said he himself had sold a waterfront Eastern Road property, located near his client’s, for $775,000. That property had 230 feet of waterfront and was twice as large as his current client, whose home was not on the waterfront.

As a result, he questioned how the Real Property Tax Department could value his client’s home at a whopping $1.7 million - more than $1 million above his waterfront sale.

Not only that, but Mr Armaly disclosed that the Department was also trying to hit his client for tax arrears, based on that valuation, going back to 2002. As a result, his client had been billed for $150,000 in real property tax - almost $15,000 per year.

At the other end of the scale, Mr Armaly selected another well-known middle class eastern New Providence area. Numerous properties here were valued on the rolls at between $150,000 to $180,000, yet homes in the area were selling for around $350,000-$375,000.

Real property tax is assessed on the market value of a property, and the first $250,000 is exempt from valuation. This means many properties in the area cited by Mr Armaly are not paying any tax, but the fact homes are selling at the aformentioned valuations means they should be.

Given that a 0.75 per cent tax rate applies to the value between $250,000 and $500,000, it appears the homes he mentioned should at least be paying tax on $100,000-$125,000 - a high three-figure sum annually.

“They’re causing people to cheat or just not pay at all,” Mr Armaly told Tribune Business of the Government’s approach. “These tax bills, I’ve not seen anything like it..... They’re targeting anyone they think they can get the money from. They’re targeting the people who are already paying. You can’t get blood from a stone.

“A lot of people don’t mind paying something, but they can’t pay $2,000, $5,000, $10,000 or whatever figure you want them to do.”

Mr Armaly said another client targeted for increased real property tax bills earned a mere $3000-$400 per week. He added that the situation was also deterring people from improving their homes, fearing that any valuation increases would result in greater real property tax bills.

This, in turn, resulted in less business for the construction, landscaping and home improvement industries.

Mr Armaly said the real property tax bill hikes started three years ago under the former Ingraham administration, coinciding with when the global recession peaked and the Government’s revenues dropping alarmingly.

“It started up around then, and particularly over the last year-and-a-half it’s got worse I would say,” Mr Armaly told Tribune Business. “It started when this financial crisis hit. No government, including the US, wants to cut the spending. Look at the debt; it’s insane. The chickens are coming home to roost.”

The Christie administration appears to have taken up where its predecessor left off. it inherited an Inter-American Development Bank (IDB) project to strengthen real property tax administration, and the tax is among the ‘low hanging fruit’ that are short-term targets for a government desperate for revenue.

Michael Halkitis, minister of state for finance, earlier this month told Tribune Business that consultants had advised the Government it could ‘double’ current annual real property tax collections of around $92 million via better enforcement and ensuring all taxable properties were on the rolls. That, if it is achieved, could take real property tax collections to $200 million.

Mr Armaly, though, added that the real property tax bill increases had no rationale to back them. Many are suspicious that the Government is valuing properties at pre-recession, rather than current, market values, and Mr Armaly said one letter he had received from the Real Property Tax Department, in response to his query on behalf of a client, said its research showed that values had increased by more than 10 per cent.

“They’re sitting there saying property values are going up, sales are going up,” he told this newspaper. “The biggest counterpoint is why is Stamp Duty going down? Why, when the rates rose 20 per cent, did Stamp Duty revenues go down 35 per cent? And also, why are lawyer conveyancings down across the board?”

Calling on the Real Property Tax Department and the Government to consider the Bahamas’ economic reality, Mr Armaly said: “Where’s the incentive for a Bahamian to invest in his or her own country, when the real property tax cost takes out all the rent from your rental return?

“The middle class is getting squeezed in this country harder than people can imagine, and the Government has no clue. When you start adding up these everyday household costs, there’s not enough money left to pay these taxes. Are they trying to force people to sell?”

Mr Armaly pointed out that rising inflation continued to eat into often flat Bahamian incomes. He added that trying to obtain real property tax payments by seizing homes would be a public relations nightmare for the Government, and not a course of action it would take.

Doing further math, Mr Armaly said the increases in real property tax bills from $700 to $5,000 annually, in some cases, represented “a huge hit. It’s just not there. If your taxes go up $5,000 a year, you’re looking at $400 extra a month.

“For your average, true blue Bahamian, that’s a weekly salary per month. For someone making $1,000 a month, 40 per cent’s gone. Most Bahamians are in $300,00-$350,000 homes in middle class areas, so they are paying on $100,000”.

With the real property tax bill rise adding to home ownership costs and potentially deterring Bahamians from pursuing this dream, Mr Armaly said the Government would do well “in this economy” if it got 80 per cent of Bahamians, living in 200-300 homes valued at between $350,000-$375,000, to pay what was due.

Noting that this still represented a tidy sum, he added: “It’s a big plus for the Government. It’s tough, very tough, to survive, and if they’re reasonable they will get something.

“If you go into a home that is paying nothing or a few hundred bucks a year, and hit them for several thousand, it’s not going to happen. Just step back. Why does the Government tax things? They need the money. Where are they going to get it from? If it were a little more reasonable.......”

Mr Armaly said the Real Property Tax Department was “not listening to their own Registry”, nor other data sources such as his research and the Bahamas Real Estate Association’s (BREA) Multiple Listing System (MLS).

While perfectly willing to listen to challenges to valuations and/or tax bills, Mr Armaly said the Department’s inevitable response was ‘we’ll look into it’, or ‘we’ll see if we can find the file’.

“This year alone I’ve been down there five times to try and get things sorted out,” Mr Armaly told Tribune Business. “They’re open to sit with you. I want to get this thing paid off. I want to get this cheque into you. This is what I think is reasonable. I’m doing this for clients not able to do this for themselves.

“They obviously need the revenue, but how much are you going to tax Bahamians into oblivion where they can’t afford it? The Government needs its revenue, I agree, but dropping the ball for 20 years and hitting people up with 100 per cent increases is not the way to do it.”

“They say they’re going to come around and revalue everyone again. We’ll see what happens. They’ve said they’ll come out hard again next year. I don’t know what that means, whether people will pay more or defaulters.”