The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top realtor has urged the Government to clarify whether it plans to levy 15 per cent Value Added Tax (VAT) on commercial real estate transaction prices, after this was dropped as an ‘exempt’ item in the latest draft Bill.

The Ministry of Finance notes accompanying the October version of the draft VAT Bill and regulations specifically list the “sale of commercial property” at number six in list of ‘exempt supplies of services’ - meaning VAT will not be levied upon them.

Yet the latest November draft of the Bill completely omits the “sale of commercial property” from the list of VAT ‘exempt’ supplies, implying that the Government’s thinking has altered and that these deals are now liable to have a 15 per cent levy imposed upon them.

As a result, George Damianos, head of Damianos Sotheby’s International Realty, called on the Christie administration to publicly disclose whether it was planning to levy VAT on commercial property sales prices.

Noting that this, combined with the usual 10 per cent Stamp Duty, would give the Government a collective 25 per cent tax take ‘off the top’, Mr Damianos indicated it would effectively kill off a still-depressed commercial property market.

“The Government needs to clarify it,” he told Tribune Business. “Does this mean you’re going to have to pay 10 per cent Stamp Tax for the transfer of commercial property, and be paying over and above that, 15 per cent VAT.

“If that is correct, the Government is now planning to collect 25 per cent on the sale of commercial property. I wouldn’ want to be invested in commercial property. This wouldn’t sit well.”

Others, though, were less diplomatic than Mr Damianos. Michael Lightbourne, head of Coldwell Banker Lightbourne Realty, exclaimed: “Oh my God” when told of the commercial property VAT developments by Tribune Business.

“They’re [the Government] headed in the right direction if they want to kill real estate long-term,” Mr Lightbourne said. “Business people are having a hard time as it is. It’s bloody difficult.

“They’re trying to kill this country and are doing a wonderful job. Where are we headed? Up a creek without a paddle.”

Franon Wilson, the Bahamas Real Estate Association’s (BREA) president, said it was “incumbent” on the organisation to find out why the Government had seen fit to impose 15 per cent VAT on commercial property transactions if this indeed was the case.

While previous talks with the Ministry of Finance had “helped bring home the reality” of the Government’s fiscal situation, Mr Wilson added: “If it is now the case that commercial property will have VAT added to it, it’s incumbent on BREA to gain an understanding as to why.

“If we can get an explanation, we as Bahamian shave to look out for country first. If it makes sense and is in the best interests of our country, no doubt we will have to go with it despite being a tough pill to swallow.

“But if there’s an opportunity to invite the Government to reconsider different aspects of that decision, it will be something we put forward to government as well.”

Mr Damianos, meanwhile, acknowledged that the real estate industry had always assumed VAT would be levied on commercial rentals - as the Government indeed plans to do.

He added that a 15 per cent increase in rental rates was “pretty hefty”, and suggested that both landlords and tenants would be looking for the other to pick up the tax tab.

Confirming that realtors had met with the Ministry of Finance’s VAT Implementation Unit, Mr Damianos said officials were unable to answer questions such as whether the tax would be levied upon Common Area Maintenance (CAM) charges.

And they also received no answers on what would be considered ‘inputs’ upon which they could either claim VAT ‘refunds’, or ‘net off’ against their ‘outputs’.

“What about our printed materials? Are they going to consider automotives as part of our tools?” Mr Damianos asked. “What will they accept as tools of our trade to operate a real estate business? What is needed by real estate people? We didn’t get those answers.”

While residential real estate sales, and the transfer of vacant land, remain VAT ‘exempt’, Mr Damianos noted that the “cost of buying and selling real estate” would still rise as a result of it being levied on appraisal fees, realtors’ commissions and legal fees.

“It is very concerning,” he told Tribune Business. “One of the major concerns we have is to make sure we have a level playing field with VAT.

“Take large companies like mine, charging and implementing VAT, and then you have someone working from a kitchen table who chooses not to charge VAT.

“They say they can do it 15 per cent cheaper. How can I compete with him? It would be nice if the Government thinks it through, and makes sure the playing field is level and not lop sided.”