The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian resort industry was yesterday said to have “got 90 percent of our asks” over the new condo hotel tax which has now come into effect some eight months after it was first unveiled.

Robert Sands, the Bahamas Hotel and Tourism Association’s (BHTA) president, confirmed to Tribune Business that the new tax - designed to ensure the Public Treasury gains its fair share of income from hotel condos and units included in hotel pools - is “in effect” after being introduced in last May’s 2022-2023 Budget.

“I am aware that the Department of Inland Revenue is doing the rounds of various properties and getting information to come up with assessments,” he said. “They’re doing an assessment of valuations, which I know that they are working on. I am aware that the regulations and guidelines have gone out, and that it has passed and become law.”

One hotel industry source, speaking on condition of anonymity, told this newspaper that the sector had largely obtained the clarity and tax structure it had been seeking following several months of talks with the Government on how the condo hotel tax would be applied and function in practice.

“The industry is very satisfied with the guidelines and got 90 percent of our asks,” the source said. “They’re going to calculate it on the residential rate. Previously, if they didn’t meet the threshold they would have to pay the VAT and the real property tax. Now they have got to pay the delta - the difference between the two. Those were the major issues.”

Simon Wilson, the Ministry of Finance’s financial secretary, could not be reached for comment yesterday while other government spokespersons were also unavailable. However, a ten-page Condo Hotel Tax guidance document, issued by the Department of Inland Revenue, confirmed that the new levy had taken effect from January 31, 2023.

“All condo hotels and properties within a hotel rental pool will be required to pay a tax called a Condo Hotel Tax to the chief valuation officer by 31 January each year. During the initial year of 2023 this deadline has been extended to 31 March,” the document said. “Payment of this tax is required in order for the hotel’s licence to be renewed.”

The timelines for when the tax took effect, and payment is due, could not be confirmed before press time last night. However, linking a hotel’s licence renewal directly to tax compliance, and making sure its unit owners are fully up-to-date on their obligations, effectively places the burden on the resort owner and/or operator.

They may effectively have to pay the tax due in behalf of delinquent unit owners to ensure no delays in licence renewal, which is critical for them to be able to operate, then recover the sum afterwards from their clients. The guidance document makes clear this is the Government’s thinking.

“Since the administrator (hotel owner/operator) and owner are jointly and severally liable for the payment of the condo hotel tax, they have the option of determining between themselves how they intend to ensure that the tax is paid,” the paper said. “However, the tax may also be deducted from rental proceeds. The Government intends to propose legislation in the 2023-2024 fiscal year that will expressly empower administrators to recover the tax from unit owners.

“The condo hotel tax only applies to units within either a condo hotel or other hotel rental pool that do not report net VAT in excess of the condo hotel tax. Therefore, where the net VAT paid in respect of a particular unit exceeds the condo hotel tax applicable for that unit, no condo hotel tax would be payable on that unit.”

Prime Minister Philip Davis KC, in unveiling the new tax in last May’s Budget, said it was designed to set a minimum threshold or “minimum tax fee” equivalent to 75 percent of the subject unit’s assessed value for property tax purposes. This was billed as a means to extract revenues from condos, apartments and other high-end real estate that are normally exempt from that levy under the Hotels Encouragement Act levy because they are placed in hotel rental pools.

Mr Davis explained that this “minimum tax fee” will only kick-in if the unit’s real property tax value is greater than the VAT levied on the rental income generated. This meant, Mr Davis said, that if a property was assessed for $100, for example, and failed to generate VAT equivalent to or greater than this value, its owner would pay $75 as the “minimum tax fee” to the Government.

“We are trying to close the loopholes we have, and for high-end properties this is one way of doing it,” Mr Davis told the House of Assembly during his Budget presentation. “We are now imposing a minimum tax fee of 75 percent of the real property tax assessment for high-end properties, which are exempt from property tax because they are in a rental pool, if these properties do not generate VAT revenue equivalent to the real property tax assessment.

“If part of a rental pool, and your condo and apartment is being rented, we expect VAT to be paid on the rental.” The “minimum tax fee” will likely capture unit owners in high-end mixed-use resort developments such as Albany and Baker’s Bay, where such properties are placed into a rental pool and leased out to other visitors when the proprietor is not there.

Several observers have argued that there has been an increasing trend of mixed-use resorts featuring a small hotel component, but placing residential units in a rental pool, just to enable their owners access to the real property tax exemptions under the Hotels Encouragement Act. While this may stimulate investment and real estate purchases, it also means the Public Treasury collects less revenue.

Tribune Business sources have revealed that government officials privately admit capturing taxes on such arrangements is problematic because it is almost impossible to determine when such units have been placed in the rental pool and/or are being leased.

The Department of Inland Revenue guidance note said the “minimum tax fee” will be capped at $150,000 per unit. And all unit owners will enjoy a 50 percent discount in the first year.

“The condo hotel tax has a rate of 75 percent of the rate of tax applicable to residential property under the Real Property Tax Act on the value assessed by the chief valuation officer of each property that forms a part of the condo hotel or hotel rental pool up to a maximum amount of $150,000 per unit,” the document said.

“However, during the first year unit owners and administrators will only be required to pay half of this charge. The current rate of tax for residential property under the Real Property Tax Act is 0.625 percent of the value of the property.” The first year’s net VAT will be based on the half-year from July 1, 2022, to end-December 2022, but calculated on the full 12 months thereafter for future years.

“The Department of Inland Revenue (DIR) will issue an assessment with the value of each unit that falls within a condo hotel or hotel rental pool by 31 December of each year,” the guidance document said. “The total condo hotel tax will be applied to this value. All administrators and unit owners are required to file a return in the form prescribed by DIR by 31 January of the following year.”