The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday urged to “make it crystal clear” that Value-Added Tax (VAT) will not be levied on the purchase price in commercial real estate transactions, amid warnings that the resulting “uncertainty” was harming this market.

Adrian White, head of the Bahamas Bar Association’s real estate committee, said the various government notices and guidance notes promising not to levy VAT on commercial property deals “don’t go far enough, in my view”.

Explaining that this opinion was shared by many Bahamian attorneys, Mr White called on the Government to either amend the VAT Act itself or publish a Gazzetted notice confirming that the 7.5 per cent levy will not be imposed on commercial real estate transactions.

Without such final clarity, he warned that the resulting uncertainty threatened to cripple the Bahamian commercial real estate market with negative consequences for all involved, not least the Government and its Stamp Duty earnings.

Mr White told Tribune Business that “the uncertainty as to whether transactions will be subject to VAT, if any, post-January 1” had been the key issue occupying much of the Bar real estate committee’s time.

“The big uncertainty resides over whether a particular transaction, specifically a commercial transactions, would attract VAT on the purchase price and transaction costs,” he said.

Realtor’s commissions and legal fees associated with real estate transactions are widely-known to attract 7.5 per cent VAT, while residential property and vacant land sales are ‘exempt’ from the tax.

When it comes to commercial real estate sales, the picture is murkier. The Government initially proposed that VAT be levied on the purchase price for these transactions, suggesting that the businesses involved could ‘offset’ it as an expense against their outputs or claim it back via a refund.

It then appeared to reverse course, announcing that commercial real estate deals would no longer attract VAT on the transaction price.

But, while conceding that the Government had issued notices and policy papers to that effect, Mr White suggested this did not alleviate the industry’s concerns.

“The difficulty with that is while they have issued these notices, papers, they still have not amended the VAT Act, which provides for VAT to be paid on certain commercial transactions,” he explained.

“There is also another way for the Ministry to put the application of certain provisions under the VAT Act on hold.

“I’m not sure, and 90.9 per cent of the industry are not sure, if that paper has been Gazzetted saying VAT is not applicable to commercial real estate transactions at this time.”

Mr White added that the Government’s actions to-date “did not go far enough, in my view, and the view of attorneys in dealing with real estate transactions”.

While government officials had also given oral assurances that VAT will not be levied on commercial real estate transaction prices, Mr White told Tribune Business this position needs to “be made crystal clear” via either legal amendments or a policy paper published as part of the Government’s official Gazzette.

Warning that this situation could disrupt the market if allowed to persist, he added: “It’s not something that can be sufficiently addressed over the telephone. Any time there is uncertainty, you have more difficult terms for both parties in the transaction documents.

“These create additional costs, which could be a deal breaker, and make the deal unaffordable.”

Levying VAT on commercial real estate purchase prices would cause practical complications, too, Mr White said, when it came to who paid the tax.

He questioned whether the vendor or buyer should pay it; whether the VAT payment should be split between the two; and who ultimately would collect and remit it to the Government - the seller, purchaser or one of their attorneys.

Like Stamp Duty, Mr White said VAT and who paid it was not included in transaction documents, and he pointed out the collection/remittance difficulties if the seller or buyer was not a registrant, and did not possess a Taxpayer Identification Number (TIN).

Turning to the implications for companies/entrepreneurs involved in commercial real estate transactions, and industry professionals, Mr White told Tribune Business: “It’s not beneficial to the vendors, it’s not beneficial to the purchasers, it’s not beneficial to the realtors, and it’s not beneficial to attorneys involved in real estate transactions. It’s not beneficial to anyone.

“You can have transactions ready to go ahead today, but they’re not, because of the uncertainty. If we wait until tomorrow to get it cleared up, the opportunity may have passed. When these deals go through, they ultimately benefit the Treasury through Stamp Duty being paid.”