The Tribune

• Success critical to avoid 'increased tax rates'

• 'Fiscal pressure alleviated' if millions realised

• Realtors back property tax drive if 'done right'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is launching its "most co-ordinated effort" ever to crackdown on tax cheats with its success in collecting hundreds of millions in outstanding revenue critical to avoiding "increased tax rates".

Simon Wilson, the Ministry of Finance's financial secretary, speaking after the authorities last week warned they will exercise the "power of sale" against "extreme" real property tax delinquents, said the Government has "hit an iceberg" when it comes to enforcement and cannot - and will not - ignore blatant failures by taxpayers to meet their obligations.

Asserting that "a lot of fiscal pressures are alleviated" if all pay what is due to the Public Treasury, he told Tribune Business that the drive to collect up to $600m in outstanding real property taxes plus significant VAT and Business Licence fee liabilities is "very important" to the Davis administration's ambitions of imposing no new and/or increased taxes on Bahamian citizens and businesses.

"We don't want to raise tax rates," Mr Wilson said. "We have to be more efficient in our collection process. We have to. We should collect as much as we can before we consider raising tax rates. We always have a choice from a large range of options, but by far the most palatable option we have is improving our compliance."

Shunda Strachan, the Department of Inland Revenue's acting controller, last month estimated that taxpayers owe a combined $875m in unpaid VAT, real property tax and Business Licence fees that are past due. Mr Wilson told this newspaper he believes tax compliance can be "substantially" improved, and added: "I think we have hit an iceberg with respect to this thing about compliance.

"When we focus more on compliance it alleviates a lot of fiscal pressures. It's very important. We don't want to be in a situation where we have to use other measures to increase revenues, such as new taxes or increasing tax rates. We don't want to do that."

Prime Minister Philip Davis KC is due to unveil the 2023-2024 Budget in just over two weeks' time in the House of Assembly on Wednesday, May 31, when he will set out plans for a 12-month period during which the Government is aiming to cut the fiscal deficit by more than 78 percent and set itself up to achieve a surplus in 2024-2025.

Mr Wilson, who acknowledged that enhanced compliance is "very, very important" to reaching a position where revenues exceed spending, said the Department of Inland Revenue's communications on the issue have been consistent "all year long" in terms of foreshadowing the enforcement drive that was coming.

Asked if the authorities should have employed such tactics against major tax delinquents from years ago, he replied: "The Government has, over a period of time, taken certain taxpayers to court. The Government has taken strong enforcement action against certain taxpayers. The Government has done that.

"There's a clear history of the Government doing that. It's not a circumstance where the Government has not done it. We've even once before exercised the 'power of sale'. There's a clear history of that. Nothing that we are proposing today has not been done before. [But] this is the most co-ordinated effort in terms of compliance.

"We have a hefty target. We have to achieve that target. We have over $600m in real property tax arrears. We have substantial arrears in respect of VAT and Business Licence, so we have to hit those targets. Our messaging has been pretty consistent in what we think is going to happen."

While the occasional "outlier" exists, Mr Wilson said most taxpayers usually want to become compliant with their obligations. Adding that last week's 'power of sale' notice was not a threat, but a "reminder of what is in the legislation", the financial secretary said there had nevertheless been "a significant improvement" in real property tax compliance mainly due to the commercial banks paying what was owed on behalf of mortgage holders.

The Department of Inland Revenue last week said its notice, warning taxpayers it will seize and sell-off their properties to recover past due liabilities, is "targeting extreme cases" who have totally disregarded their tax obligations for up to 10-20 years. It has also begun garnishing the bank accounts of companies owing significant VAT arrears, placing a hold on them and - in some cases - seizing funds by having financial institutions remit them.

The authorities plan to reveal the "first list" of targeted properties and real estate in early June 2023. Although the notice's disclosure caused some alarm and disquiet, the Department of Inland Revenue is only targeting long-standing bill duckers and tax cheats who have ignored all prior outreach efforts, tax amnesties, notices and communications urging them to bring their real property tax liabilities current and comply with the law.

Bahamian owner-occupied property is, by law, exempt from the "power of sale" contained in the Real Property Tax Act, which means that citizens residing in homes that they own will not be impacted by the latest crackdown. And, given that the real property tax exemption threshold was increased from $250,000 to $300,000 in last year's Budget, many middle and lower income Bahamians do not pay the tax in any event.

Delinquent commercial, residential, foreign-owned land and foreign-owned owner-occupied properties are subject to the 'power of sale'. Many appeared to interpret "residential" as including Bahamian-owner occupied properties, but this definition instead applies to duplex and triplex-type complexes that are rented out by their owner landlords who do not live on property.

Bahamian realtors backed the Government's stance provided the 'power of sale' process was implemented equitably, allowed for due process and followed the law. John Christie, HG Christie’s president and managing broker, told Tribune Business: "I think on the bird's eye view, looking down and not the minutiae, I think it's actually a good thing.

"It's what every other country does if people don't pay their property tax; the municipality comes along, gives them notice and follows a process, and sells them if there's no resolution. The main thing is the implementation. That's the problem we might have; the implementation being done right. We have a lot of things going on, and sometimes the Government hires outside companies to do it and they don't know the law, so things go awry.

"It needs to be really well thought-out, done properly and done right in a well-organised way so that there's no mis-communication. Government sometimes puts things out, then has to back track because it's not been worked out or thought through. But if people don't pay their property taxes there should be a mechanism to address that as long as it's done correctly,"

Mike Lightbourn, Coldwell Banker Lightbourn Realty's president, also backed the move "with certain provisos" such as ensuring that properties were assessed correctly according to their market value. He suggested that some taxpayers may be withholding payment in a bid to try and force the Government to adjust its valuation, as the law presently requires that they pay the full disputed amount before they can challenge this and their tax assessment.

"I think they're only going after severe cases of non-payment," Mr Lightbourn said. "You still have the right to go to court, contest it and get an appraisal. In some cases, people may not be paying because they have been over-assessed. If you want to contest the Government's valuation you have to pay the full assessment first, which is outrageous. They should change that in the law.

"But people who just don't pay; it's time they were dealt with. I don't think they're going after the little fellow. In my opinion they are, as it should be, going after the bigger taxpayers. It will drive some people to make the payments, which is odd, especially for those with means."