The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Realtors yesterday hailed the Government’s decision to eliminate the 12 percent VAT rate on high-end property sales as “a very solid move”, adding: “It shows we mean business.” 

John Christie, HG Christie’s president and managing broker, told Tribune Business that returning to a 10 percent rate on the portion of real estate deals worth $2m and above would “signal to the world” that The Bahamas wants to remain competitive in the fight to attract high-net worth real estate investors and buyers.

The proposed cut was detailed in the VAT (Amendment) (No.2) Bill that was tabled in the House of Assembly yesterday. “Clause five of the Bill seeks to amend the Third Schedule of the principal Act by reducing the rate of tax on the portion of real property transactions above $2m from 12 percent to 10 percent,” the Bill’s “objects and reasons” state.

The change is part of the Davis administration’s plan to cut the VAT rate from 12 percent to 10 percent, while at the same time returning to the tax’s original broad-based model that it believes will generate more revenues by being similar to administer and enforce.

However, some observers are likely to question why the new administration is seemingly giving a tax break for wealthy real estate purchasers when it has previously stated that the exact opposite intentions are driving its VAT reforms.

Others may also see it as highlighting inconsistent tax policy, as the 12 percent rate’s real estate-related elimination comes just over four months after it was introduced by the former Minnis administration on July 1 as part of the original 2021-2022 Budget.

Nevertheless, Mr Christie said: “I think it’s a very solid move. It helps to show we’re serious, and I think it’s a very positive move. It will show the world that The Bahamas’ government means business in encouraging international investors to purchase in The Bahamas.”

Asked whether the former administration’s decision to levy a 12 percent VAT rate on real estate deals above the $2m mark had deterred buyers, and disrupted deals, Mr Christie replied: “I anticipated that it would have impacted the market.

“What it did was create a big rush, so we were rushing manically to get everything done for the 10 percent VAT rate before it was changed for the bigger deals. But, after that [end-June deadline passed], people shrugged their shoulders at it. It didn’t have the impact I expected.

“It’s a good move to reduce it,” he reiterated. “The market is so hot, and there is so much money around, that the big buyers did not pay any attention to it, but in a slower market it would have had a bigger impact.”

The Minnis administration expected to raise just an extra $4m from the 12 percent rate, so many observers will likely argue that wealthy participants in real estate deals would not have been deterred by such a relatively modest increase - especially since buyer and seller are likely to split it 50/50. Each would have paid the equivalent of just an extra 1 percent of the purchase price.

Still, Mr Christie said it was vital that The Bahamas remain competitive with rival jurisdictions such as the Turks & Caicos Islands, which is offering stamp tax holidays and other discounts in a bid to attract the same high net worth purchasers this nation is targeting.

“It’s a good signal to the world that we mean business,” he added. “It’s a good signal that The Bahamas is open for business, and we’re looking for high net worth investors to buy property.”

Mike Lightbourn, Coldwell Banker Lightbourn Realty’s principal, told Tribune Business the VAT adjustment was “helpful” but voiced surprise that it is being implemented. “Obviously I’m delighted but they’re going to catch hell from their supporters,” he added.

“There were a couple of sales affected by it [going to 12 percent], as people had previously signed sales agreements, and they say that any change in that aspect, it specifies who pays.”

Many Bahamians believe wealthy foreign real estate buyers should be taxed more given their greater ability to afford it, and the current explosion in such sales, but realtors have frequently warned that any increases risk undermining this nation’s attractiveness in a highly competitive market.

Kwasi Thompson, former minister of state for finance when the 12 percent VAT rate was imposed, declined to comment on the Davis administration’s planned change when contacted yesterday.