The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Real property tax is "contributing to a social ill" because it is calculated on real estate value rather than square footage, a well-known realtor is warning.

Gino Maycock, a senior broker and appraiser at Colonial Realty, told Tribune Business that the present real property tax structure was a potential deterrent to Bahamians improving their homes because this would likely result in an increased tax bill.

He argued that this, in turn, led to less activity in sectors such as residential construction and home furnishings, while also providing a disincentive to upgrades that improved the overall appearance and value of many Bahamian communities.

Mr Maycock urged the government to establish The Bahamas as "a model country" by basing residential real property tax on square footage, rather than appraised market value, calling on it to dare to be different.

He also warned that going back to the old ten percent stamp duty structure for real estate transactions could have a temporary chilling effect on the commercial sector, as companies were no longer able to recover the 7.5 percent VAT portion previously paid on their purchases.

The government abolished the 2.5 percent stamp duty/7.5 percent VAT structure implemented by the former Christie administration in the 2018-2019 budget, arguing that the preferential tax treatment it gave to companies as opposed to residential purchasers - who still had to pay the full ten percent rate - was "inherently unfair".

Mr Maycock said the "sudden" change would likely cause a "pause" in the commercial real estate market until participants became "comfortable" with the change and what it means.

He added, though, that real property tax was another area where the government should implement structural reforms because of the disincentive it creates for Bahamians wanting to improve their residences.

"This has been a concern of mine for a long time," the Colonial Realty broker told Tribune Business, "and I've been trying to communicate with the powers that be to get them to revisit it. The structure is really unfair in the way it's laid out."

Mr Maycock gave the example of two adjacent homes worth more than the $250,000 'floor', bought at the same price and identical in every respect, except that one owner had invested in upgrading their property while the other had allowed theirs to deteriorate.

He added that the former now faces an increased real property tax bill because the value of their residence has increased, while the latter's may well have fallen due to lack of pride in their home.

"You're telling me the more we improve our property, neighbourhood and community, the more you're going to tax us," Mr Maycock explained of the present real property tax structure. "The Government has this system that is a deterrent to keeping improving your property.

"The more you improve your property, the more you take care of it, the more you're going to be taxed and pay to the Government. It's contributing to a social ill. If a community deteriorates it affects everybody and everyone. It's a cycle they don't see that's contributing to this breakdown.

"The [real property tax] structure should be based on square footage of the home rather than its value and how it looks. It should be a fixed figure for a gated community. I'm then encouraged to improve this home through the roof and enhance it, and not fear the Government coming around and saying: 'You look pretty; come and pay more taxes'."

Constructing a progressive, equitable property tax structure based on square footage and an appropriate 'sliding scale' of tax rates certainly appears feasible. Wealthier persons, who generally have larger homes, could thus be taxed at a higher rate and contribute more.

However, changing the basis of real property tax's calculation is unlikely to resolve compliance levels that are traditionally low, and the Government would want to ensure revenues generated by the existing system are maintained. Appraisers, too, would have to alter their method for calculating taxes due.

Mr Maycock said stimulating home improvements would boost the construction and furnishings industries, with the increase in economic activity generating a rise in tax revenues collected by the Government at "the back end" rather than at the front.

"I think someone should take a fair look at it," he added of his proposal, urging the Government to dare to be different. "It makes economic sense, it's feasible, and I think it would be a change. To say someone else is not doing it doesn't mean we can't. We can be the model country."

The Colonial Realty broker added that the commercial property market may take time to adjust to the revised transaction tax structure, as businesses were no longer able to treat three0-quarters of the tax paid as a business expense and 'offset' or 'net it off' against the VAT output tax collected from consumers.

"What getting rid of VAT does, especially for companies purchasing real estate now, is that it doesn't give them a chance to recover the VAT as it's no longer part of the process," he told Tribune Business.

"It's definitely going to change companies' approach to purchasing real estate, the number and type of transactions they're going to engage in, as VAT is no longer recoverable. It's probably going to cause a little lull. People need time to absorb and understand the full implications it's going to have.

"It's probably going to put a little pause on it until everyone gets comfortable with it, what it means, and confident enough to move forward," Mr Maycock added of the 10 percent Stamp Duty.

"It's about confidence in the market, especially when change comes so suddenly. Persons have to go into a huddle. It's definitely going to take some time for the market to absorb the impact, adjust to it and see how they stay in the game and how they stay alive."