The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Real estate transactions are being “held hostage” by frequent Department of Inland Revenue (DIR) challenges to sales prices as it bids to maximise taxes, an Opposition MP is charging.

Adrian White, the St Anne’s MP and a commercial attorney by profession, told Tribune Business that the tax authorities appear to be “creating and setting the market price themselves” by questioning transaction prices that are lower than the valuations they have assigned to specific properties for real property tax purposes.

Speaking out after realtors last week warned that an increasing number of property deals are being put “in jeopardy” by Department of Inland Revenue (DIR) challenges to the sales price, upon which VAT payments are based, he warned that The Bahamas’ “reputation is the loser” when this causes completion delays or even the collapse of sales.

Confirming that he has personal experience of such delays with deals he has handled, Mr White told this newspaper that “transactions are at risk of being lost” whenever the authorities demand higher VAT payments on a conveyance than both vendor and purchaser have bargained for.

While this has been “more of a frustration to the market” than deal-breaker at present, the St Anne’s MP said the Government was imposing an ever-greater tax burden on Bahamians to help pay for the “bad financial position” in which the Public Treasury finds itself post-Dorian and COVID-19.

And, while agreeing that persons who sought to cheat the Government of due taxes by submititng false, lower values than the actual purchase price should be punished, Mr White argued that the entire real estate market “should not suffer for one or two” rogue operators as he himself had never encountered such “under the table” practices in 20 years as an attorney.

“We have experienced it,” he said of VAT-related real estate deal hold-ups. “It’s especially more of an issue when there’s a real property tax assessment on the property that is higher than the purchase price. 

“I would say say that, about 90 percent of the time, properties are being sold through realtors who have marketed them themselves and through the industry’s MLS (Multiple Listing System), and they are the best example of market price, market value, which is the value the real property tax assessment should be equivalent to.”

Dexter Fernander, the Department of Inland Revenue’s operations manager, last week said it typically queries a sales price if it is more than 15 percent lower, or higher, than the assigned real property tax valuation. However, Mr White said the tax authority’s practices often inflated the latter valuation to a level above what the market will pay.

“You’ll find the Department of Inland Revenue will send persons around to reassess property in a neighbourhood or community, and if they find one example of a sale which may be higher than the market average, they’ll increase everybody’s property to that value,” he asserted.

“Sometimes they will ball park it. Say there’s a property on Paradise Island; because of the location they will say someone will pay more for it [than market value or sales price]. They’re almost setting the market price rather than have the tax assessment based on the market price.

“They are creating and setting the market price themselves based on what they think the property’s worth, not what the comparatives show it’s valued at.” Mr White likened the motivation for the Government’s stance to someone desperately seeking to sell their property for a price higher than the market will typically bear in a bid to pay off debt.

“What we find is the Department of Inland Revenue is doing the same thing,” he argued. “There are financial collections and targets that they need to make, and they are imposing them on the Bahamian people and Bahamian real estate market in the hopes of mitigating the bad financial position for themselves; having more expenditure than they can manage without taking more out of the pockets of Bahamians.

“That all comes back to the delay that is being seen in having a real estate transaction completed, as the VAT needs to be paid first. It’s not being accepted on the purchase price because the Department of Inland Revenue’s property tax valuation on the property is greater.” 

Mr White said the hold-up caused by sales price/VAT challenges is worsened by the further wait for the Department of Inland Revenue to conduct reevaluation assessments. Suggesting that this should be completed in “a week or two”, he added that reassessment requests were either “stonewalled or completely ignored” or failed to reach the relevant officials.

And, if they were received, the St Anne’s MP said they often seemed to “bottleneck at the desk of senior assessors who have more work than they can handle in a timely manner”. He added: “At the end of the day, our reputation is the loser, and we will find transactions that have fallen apart.

“For some people, money coming from a transaction, the sales proceeds, are needed urgently, and if the transaction drags on for too long you cannot complete the purchase because of the delay in closing.

“In my experience, it’s more of a frustration to the market at this stage. I’ve not dealt with too many matters where the Department of Inland Revenue has not finally come around in terms of something reasonable in terms of reassessment. But you cannot predict when it will be resolved and it shouldn’t be that way in the first place.”

Mr White also voiced the frustration of many realtors and attorneys that the Department of Inland Revenue appears to treat all submitted conveyances and transaction prices as automatically suspicious. 

“If there are persons trying to evade the Department of Inland Revenue by setting a price on a deal that is lower than what was actually paid for it to reduce the amount of taxes payable, those individuals should be penalised but the industry should not suffer for one or two,” he told Tribune Business.

“I’ve not had a transaction in the 20 years that I’ve practiced where there’s been a price on the documents and another price paid under the table. I expect the industry is being penalised not because of the poor conduct of any players in it but the necessity of this government to increase revenue collection.

“They are basically holding transactions hostage until the vendor and purchaser agree to pay a higher amount of VAT as the transaction is at risk of being lost. We don’t need that in this country. We have so much going for ourselves in terms of all our industries,” Mr White continued.

“We shouldn’t be as desperate for revenue as we find ourselves in right now. We’ll be in a poorer position if we continue to frustrate business, frustrate business and turn revenue away because of forced delays.”

Mr Fernander, though, last week told this newspaper that the Department of Inland Revenue “needs some clarity if there is a drastic difference in value” as a result of the sales price being 15 percent lower, or higher, than a property’s appraised value for real property tax purposes.

Another warning sign, he added, was if the conveyance value did not align with comparative property prices for the same neighbourhood. “What we see is that some are questionable on the neighbourhood comparatives,” Mr Fernander explained.

“We don’t know if these are fire sales, but the values coming in are not in comparison with the comparatives the Department of Inland Revenue has. There are difficulties on that end with accepting the value. There’s a need for education for what is fair market value versus the sales price.

“Realtors needs to better educate their clients on the transaction to make that transition easy. Every property has an assessment number and valuation, so they will know the [sales] valuation is off before they advise the client. If it goes beyond our benchmark, we have to question what is causing it.”

The Department of Inland Revenue’s operations chief said the intention was not to halt or interfere with economic activity. However, realtors have warned that delays threaten to have “a domino effect” because, if sales are lost due amid demands for a higher than expected VAT payment, multiple industries lose out while the Government misses valuable revenue.