The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister yesterday revealed that real property tax arrears now total $800m as he pointed to the Government's plan to allocate all past due revenues to paying off the national debt when collected.

Philip Davis QC, leading off the 2022-2023 Budget debate in the House of Assembly, disclosed that unpaid real property taxes now stand at a sum equal to 15 percent of The Bahamas' gross domestic product (GDP) in highlighting Public Finance Management Act reforms that will require any collected arrears to be paid into a "sinking fund" created to pay down the $10.5bn national debt.

"I advised of an amendment to the Public Finance Management Act to ensure that all arrears collected go into the sinking fund to pay off debt, and I advised of an amendment to the Real Property Tax Act to simplify our collections effort," he said.

"The total arrears for real property tax alone are about $800m or roughly 15 percent of GDP. We have dedicated this entire amount to pay down debt, along with other tax arrears including VAT, Business Licence, Customs duties or even Immigration fees. Madam speaker, this is a very aggressive strategy to manage our debt."

No mention was made by the Prime Minister of how much of that $800m is deemed to still be collectable, and how much is unrecoverable and may have to be written-off. Given that the Auditor General's report for the 2017-2018 fiscal year identified some $600m in outstanding real property taxes, it appears that this sum has increased by a further $200m in the past four years.

The Prime Minister said during his Budget communication that the Government is only collecting around 60 percent of its annual $280m real property tax billings which, when based on the $169.433m in forecast income to be generated from this revenue stream during the 2022-2023 fiscal year, leaves more than $110m uncollected in a 12-month cycle.

And Tribune Business revealed on Monday that the Government is owed more than $261m in “outstanding arrears” that were due for payment from three key revenue streams within the 21-month period to end-March 2022.

Information culled from the Department of Inland Revenue’s (DIR) systems, and disclosed with the 2022-2023 Budget communication, showed that some $95.1m which become due for payment during the 2020-2021 fiscal year from VAT, Business Licence fees and real property taxes was uncollected as at May 2022 when the Budget was prepared.

The $95.1m was broken down into $16.874m in VAT arrears; some $8.867m in past due Business Licence fees; and $69.36m in uncollected real property tax. The main contributor to the real property tax delinquency was identified as commercial properties, mainly those owned by businesses or subject to “mixed use”, which accounted for $38.022m or 54.8 percent - more than half - of the sum outstanding.

Vacant property generated another $22.87m in real property tax arrears, just under one-third of the total amount, while residential and owner-occupied properties were identified as responsible for $2.179m and $6.288m of the 2020-2021 arrears, respectively. These arrears stem from a period that coincided with the peak of the COVID-19 pandemic.

These sums were shown to have increased further in the nine months between July 2021 and March 2022, which represents the first three quarters of the current fiscal year. Some $63.381m in outstanding VAT payments were said to be due, along with $20.355m in Business Licence fees and $82.481m in real property taxes.

However, given that the present fiscal year has yet to close, those amounts are likely to reduce. In particular, given that end-March was the deadline for Business Licence fee payments, that $20m-plus figure is likely to be lowered as late-paying companies make good on what is owed to the Department of Inland Revenue and Public Treasury. Real property tax and VAT payments will also continue to come in.

On real property tax, commercial and mixed use properties again led the way during the first nine months of the 2021-2022 fiscal year. They were again responsible for $44.368m, or over half, of the total arrears while vacant land accounted for $25.183m. Residential and owner-occupied properties were responsible for $4.31m and $8.63m of the 2021-2022 arrears, respectively.

The Budget documents described the revenue arrears as representing “outstanding balances as of May 2022. Arrears are reported by fiscal year, based on the period in which the tax liability originated. All outstanding balances are included, starting from one day past due”. The figures, they added, included surcharges, penalties, fines, fees and interest due on outstanding tax principal.

Mr Davis, meanwhile, yesterday said the Government had increased the Department of Inland Revenue's budget by $1.5m for the upcoming 2022-2023 fiscal year in a bid to ensure it fulfills its mandate to collect every cent due to the Public Treasury.

"The fiscal year 2022-2023 budget includes and assumes increases in revenue collections, particularly associated with improvements in VAT collections at the Department of Inland Revenue, or DIR. As I have previously articulated in this House, there are many administrative challenges facing this agency, including limited staffing, lack of legislative certainty, lack of a career path for staff and poor compensation. This budget seeks to address many of these challenges," he said.

"In this Budget, the department is provided with a budgetary increase of $1.5m, largely attributed to increased salaries to allow for the recruitment and hiring of qualified staff to execute on the agency’s mandate. We are already drafting legislation to institutionalise the DIR and provide it with improved legal authority to execute its mandate of revenue collection.

"This, along with the reconstitution of a properly staffed Revenue Enhancement Unit, is designed to yield significant improvements in revenue."