The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government was yesterday urged not to outsource collection of its $550 million-plus real property tax bill to debt collectors, but instead to triple the interest penalty rate and sell these liabilities as an ‘investment opportunity’.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, told Tribune Business that the Government could transform a “disaster” by thinking creatively and selling its unpaid real property tax debts to institutional investors, such as commercial banks and pension funds.

And he added that increasing the interest penalty rate for non-payment from 5 per cent to 15 per cent would not only ensure the Government fully recovered what was owed, but also incentivise taxpayers to remain compliant.

While real property tax debt acts as a first charge over real estate by law, the reluctance of successive governments to enforce this has given rise to a culture of non-compliance, as most Bahamians perceive there are no consequences for failing to pay.

Mr Winder suggested his proposals would help change this attitude, and he called for the Government to also abandon real property tax ‘amnesties’ - where principal and/or interest owed is forgiven - as a way to encourage compliance.

Tribune Business reported two weeks ago that Prime Minister Perry Christie, in his Mid-Year Budget closing, had informed the House of Assembly that the Government planned to effectively ‘privatise’ real property tax debt collection by outsourcing this to outside agencies.

Mr Winder, though, rejected this approach, arguing that real property tax debt was radically different in nature and size from the likes of student loans, which were suited to debt collection agencies.

“There is no need for the Government to release its real property tax obligations to a private debt collector,” Mr Winder told Tribune Business.

“In most countries, real property tax is collected without the loss of $1 by the Government due to non-payment. Clearly, the Government of the Bahamas have not seen fit to sell a person’s real property to collect tax.”

The Deloitte & Touche (Bahamas) managing partner added that it was “totally wrong” to hand the Government’s multi-million dollar real property tax liabilities to debt collection agencies, arguing that they were more suited to dealing with smaller sums, such as student loans.

Outlining an alternative approach he preferred, Mr Winder said: “If the Government wants to collect its real property taxes, it should raise its interest on non-payment from 5 per cent to 15 per cent.

“What the Government should do is sell those obligations to a pension fund, the bank and other investors. They would do the collection.

“Most pension funds and institutions are looking for investments. The system has a lot of dollars with few investment opportunities offering good returns. This could be one of the better investments made available to these organisations going forward.”

With unpaid real property tax acting as a first lien or charge over the subject real estate, Mr Winder said it was “highly unlikely that a bank would allow an investor to purchase that obligation with that level of interest attached to it”.

Especially if a bank itself has a mortgage secured on the property. In that case, Mr Winder said it would actually pay off the real property tax.

“In cases where there is no mortgage, pension funds will have the capacity to go the long haul and wait until they deem it appropriate to foreclose on the property if necessary,” the Deloitte & Touche (Bahamas) managing partner explained.

“With that kind of interest rate attached to the obligation, government will be able to recoup 100 per cent of all real property tax on a property.”

While the Government would have to “reconcile” the precise real property tax sums owed on some properties, Mr Winder said his proposal would ensure it did not incur any collection costs.

“It would also be better than giving discounts to encourage people to pay on time,” he added.

“Clearly, in a time when Government needs every single dollar of revenue, it can clearly ill-afford to lose $1 in real property tax.

“With a little bit of creativity, the Government can change what until this time has been a disaster, and have a better yielding tax on its books.”

Mr Winder called on the Government to “develop a more transparent approach” to valuing properties for tax purposes.

And he suggested that it increase the $250,000 exemption threshold if it believed the bar was not high enough, pointing out that this excluded poor Bahamians from liability.

“We as a country need to exhaust all avenues to collect all taxes and payments on the books that are due to the Government,” Mr Winder said.