The Tribune

• Despite beating that year’s target by near $44m

• Auditor General urged ‘aggressive compliance’

• Tax roll grew by 24,000 properties in five years

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

UNPAID real property tax arrears totalled $690m at end-June 2021 despite exceeding target by 37 percent that fiscal year, the Government’s top financial watchdog revealed yesterday.

Terrance Bastian, the auditor general, in his report on the Government’s finances for 2020-2021, which was tabled in the House of Assembly yesterday, urged the authorities to launch “aggressive compliance efforts and revenue enhancement initiatives” to slash an outstanding tax sum that was estimated to have grown by a further $79.41m that fiscal year.

The Davis administration will likely argue it has done just that through the Department of Inland Revenue’s crackdown on foreign-owned and commercial property tax deadbeats, where it last year threatened to exercise its “power of sale” to seize, then sell- off, real estate owned by chronic delinquents who have made no effort to pay for years.

While it is unclear whether these warnings have had the desired effect, the Auditor General’s report for 2020-2021 suggested the effort led by US-based Tyler Technologies to properly map New Providence had increased the total number of properties on the tax roll by almost 24,000 - or 23.3 percent - to 126,317 over the five years to end-June 2021.

With the potential tax base expanding, and thus creating the possibility to increase property tax revenues without raising rates, Mr Bastian and his team nevertheless made their regular annual call for the Government and tax authorities to get a grip on delinquency and to start making inroads into the ever-escalating arrears.

“Outstanding tax revenue, in some aspects, contributes to budget deficits and the need to obtain additional sources of funds through borrowings and increasing other taxes or government services fees,” the Auditor General’s reported

on the consequences of non-payment.

“Outstanding real property tax revenue continues to increase. The $689.75m cumulative outstanding real property tax revenue in 2021 is an increase of 13 percent or $79.41m year- over-year. The current year’s outstanding amount of $61.26m is an increase of $9.01m or 17 percent over the prior year’s $52.25m.”

The $61.26m represents outstanding real property tax principal, with the $79.41m figure achieved through an $18.148m increase in unpaid penalty surcharges. Broken down, the total $689.75m owed to the Public Treasury, which had risen from the $610.343m due at end-June 2020, features $472.7m in tax arrears and a further $215.893m in surcharges.

However, on a slightly brighter note, the real property tax collections for 2020-2021 - which represented a full year of peak COVID - both exceeded the prior year’s figures and the then-Minnis administration’s Budget projections.

“The $143.45m real property tax revenue collected in 2021 is representative of 9 percent of the $1.61bn tax revenue [for 2020-2021] and 5 percent of $1.85bn in 2020,” the Auditor General’s report added. “With respect to the $100.33m collected in 2020, real property tax revenue increased by $43.11m or 43 percent year-over-year....

“Real property tax revenue collections for 2020-2021 fiscal year exceeded the budgeted $104.81m by $38.64m or 37 percent.” The better- than-forecast performance, the report added, was mainly driven by property tax collections from owner-occupied properties which exceeded the Budget target by $21.71m or 106 percent. Commercial, foreign-owned and residential were also ahead of predictions by a lesser amount.

“Although the real property tax revenue collected exceeded Budget expectations it is important to note that there is an enormous amount of ‘tax arrears’ due to delinquency,” the Auditor General’s report reaffirmed. “Some taxes are not being paid as due in accordance with legislation. The root cause of the arrears is non-compliance.

“Real property tax collection is very vital for the Government’s revenue sustainability in facilitating its recurrent operations. Collecting all the real property tax to be had requires efficiency and effectiveness in compliance and revenue collection. Uncollected taxes results in continuous arrears that remain outstanding for excessive periods.”

Noting the Government’s hiring of Tyler Technologies to expand the property tax register, and undertake a valuation exercise to reassess all New Providence-based properties, the Auditor General’s report nevertheless said: “Due to the importance of real property tax to the country’s tax revenue sustainability, it is important to present the outstanding taxes to be collected...

“Revenue enhancement initiatives, effective tax compliance and collectability mechanisms and ease of doing business be advanced to reduce the amount of outstanding real property tax revenue. Consequently, fast recoverability of the arrears is pertinent to increase revenue collection, as the longer the tax remains outstanding the greater the impact on revenue collection efficiency...

“With respect to fiscal year 2021, although real property tax revenue increased significantly

year-over-year, $38.64m (43 percent), the outstanding taxes cumulative amount of $689.75m requires continuous aggressive compliance efforts and revenue enhancement initiatives for notable reduction,” the report added.

“Also, tax key performance indicators (KPIs) and user experience (UX) to be employed in achieving the objective of collecting more revenue on the arrears to maximise tax administration efficiency and effectiveness. Revenue enhancement is pivotal in collecting arrears.”

The Auditor General’s report, though, did reflect the increasing number of properties being added to the tax roll and added that this “enhances the amount of revenue to be collected as the base is broadened with the increased tax coverage.

“Regarding the tax roll, there is a notable increase over the past two fiscal periods, particularly the 13,421 in 2019-2020 during the Department of Inland Revenue’s assessments in New Providence supported by the additional project’s staffing complement,” the report said, noting that COVID had impeded this process.

Over the five year period from 2016 to 2021, the number of properties on the tax roll had risen from 102,451 to 126,317, with a 6,913 or 7 percent jump also occurring during the 2016- 2017 fiscal year.

Michael Halkitis, minster of economic affairs, said last year that the Government is only targeting “really chronic” property tax delinquents among foreign and commercial owners who are said to owe a combined $461m to the Public Treasury. The Government is “targeting extreme cases” who have totally disregarded their tax obligations for up to 10-20 years with its warning that it will start to seize and sell-off their properties to recover all arrears owed.

The minister also reiterated that Bahamian owner-occupied properties, where owners live in their own residences, are protected by law from the Government exercising its ‘power of sale’ over their real estate. They are not being targeted in an initiative which seeks to “put a dent” in the total $822.168m outstanding real property that is believed to be past due and owing - a figure more current than the Auditor General’s.

Mr Halkitis, stating that the $822.168m was the total arrears as at May 18, 2023, added that of this sum some $226m is owed by foreign property owners. A further $235m is due from commercial properties housing businesses or being used as rentals, and thus generating income. Some $155m is owned by Bahamian homeowners living in owner-occupied properties.

Based on these figures, foreign tax delinquents are responsible for 27.5 per- cent of total real property tax arrears, and commercial properties another 28.6 percent. Together, they account for a combined 56.1 percent or slightly more than half of the total real property tax arrears, and it is this that the Government is targeting with the ‘power of sale’.