Property tax basis 'adds to social ills'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Real property tax is "contributing to a social ill" because it is calculated on real estate value rather than square footage, a well-known realtor is warning.

Gino Maycock, a senior broker and appraiser at Colonial Realty, told Tribune Business that the present real property tax structure was a potential deterrent to Bahamians improving their homes because this would likely result in an increased tax bill.

He argued that this, in turn, led to less activity in sectors such as residential construction and home furnishings, while also providing a disincentive to upgrades that improved the overall appearance and value of many Bahamian communities.

Mr Maycock urged the government to establish The Bahamas as "a model country" by basing residential real property tax on square footage, rather than appraised market value, calling on it to dare to be different.

He also warned that going back to the old ten percent stamp duty structure for real estate transactions could have a temporary chilling effect on the commercial sector, as companies were no longer able to recover the 7.5 percent VAT portion previously paid on their purchases.

The government abolished the 2.5 percent stamp duty/7.5 percent VAT structure implemented by the former Christie administration in the 2018-2019 budget, arguing that the preferential tax treatment it gave to companies as opposed to residential purchasers - who still had to pay the full ten percent rate - was "inherently unfair".

Mr Maycock said the "sudden" change would likely cause a "pause" in the commercial real estate market until participants became "comfortable" with the change and what it means.

He added, though, that real property tax was another area where the government should implement structural reforms because of the disincentive it creates for Bahamians wanting to improve their residences.

"This has been a concern of mine for a long time," the Colonial Realty broker told Tribune Business, "and I've been trying to communicate with the powers that be to get them to revisit it. The structure is really unfair in the way it's laid out."

Mr Maycock gave the example of two adjacent homes worth more than the $250,000 'floor', bought at the same price and identical in every respect, except that one owner had invested in upgrading their property while the other had allowed theirs to deteriorate.

He added that the former now faces an increased real property tax bill because the value of their residence has increased, while the latter's may well have fallen due to lack of pride in their home.

"You're telling me the more we improve our property, neighbourhood and community, the more you're going to tax us," Mr Maycock explained of the present real property tax structure. "The Government has this system that is a deterrent to keeping improving your property.

"The more you improve your property, the more you take care of it, the more you're going to be taxed and pay to the Government. It's contributing to a social ill. If a community deteriorates it affects everybody and everyone. It's a cycle they don't see that's contributing to this breakdown.

"The [real property tax] structure should be based on square footage of the home rather than its value and how it looks. It should be a fixed figure for a gated community. I'm then encouraged to improve this home through the roof and enhance it, and not fear the Government coming around and saying: 'You look pretty; come and pay more taxes'."

Constructing a progressive, equitable property tax structure based on square footage and an appropriate 'sliding scale' of tax rates certainly appears feasible. Wealthier persons, who generally have larger homes, could thus be taxed at a higher rate and contribute more.

However, changing the basis of real property tax's calculation is unlikely to resolve compliance levels that are traditionally low, and the Government would want to ensure revenues generated by the existing system are maintained. Appraisers, too, would have to alter their method for calculating taxes due.

Mr Maycock said stimulating home improvements would boost the construction and furnishings industries, with the increase in economic activity generating a rise in tax revenues collected by the Government at "the back end" rather than at the front.

"I think someone should take a fair look at it," he added of his proposal, urging the Government to dare to be different. "It makes economic sense, it's feasible, and I think it would be a change. To say someone else is not doing it doesn't mean we can't. We can be the model country."

The Colonial Realty broker added that the commercial property market may take time to adjust to the revised transaction tax structure, as businesses were no longer able to treat three0-quarters of the tax paid as a business expense and 'offset' or 'net it off' against the VAT output tax collected from consumers.

"What getting rid of VAT does, especially for companies purchasing real estate now, is that it doesn't give them a chance to recover the VAT as it's no longer part of the process," he told Tribune Business.

"It's definitely going to change companies' approach to purchasing real estate, the number and type of transactions they're going to engage in, as VAT is no longer recoverable. It's probably going to cause a little lull. People need time to absorb and understand the full implications it's going to have.

"It's probably going to put a little pause on it until everyone gets comfortable with it, what it means, and confident enough to move forward," Mr Maycock added of the 10 percent Stamp Duty.

"It's about confidence in the market, especially when change comes so suddenly. Persons have to go into a huddle. It's definitely going to take some time for the market to absorb the impact, adjust to it and see how they stay in the game and how they stay alive."

Comments

ohdrap4 says...

it all depends on which side you are.
the lower income homeowner can never recover his vat or property taxt. the tax is inequitable.

Posted 13 July 2018, 2:39 p.m. Suggest removal

Porcupine says...

Do people not go to a good dentist or doctor because it might cost a little more?
Property values go up also because of the area they are located, access to schools, shopping, etc., and should be taxed accordingly.
Only fair.
If people are hesitant to fix up their homes because they may be taxed more, what needs to be changed is the sense of pride and thinking process of people, not the tax structure.

Posted 14 July 2018, 6:02 a.m. Suggest removal

ohdrap4 says...

and, truth be told, if you have a poorly maintained mansion on the waterfront, they still tax you based on the area.

real estate agents are the second oldest profession. he wants the guy with a 2 bedroom apt in Palm cay to pay the same tax as the guy in a 3 bedroom home on carmichael road . lol.

Posted 14 July 2018, 8:44 a.m. Suggest removal

empathy says...

Real property tax is a very serious (and sensitive) issue and it reality ‘hits home’ when one is on a fixed income, like what happens to elderly retirees.

It is one of the easiest and most efficient taxes for governments to collect (your residence is easily found and documented). As such It makes home-owners especially vulnerable to “the big cudgel” of governments’ tax collectors. All the more reason to have progressive and sensible methods and rates, taking into consideration much of what Mr. Maycock states regarding improvements and investments. After all a well maintained structure and property benefits us all (see the delapidation in many of our NP neighborhoods and otherwise beautiful Family Islands). Additionally other factors, like not bankrupting the poor or our retirees who built our country, have to be factored into tax policy. In this scenario real property taxes on owner-occupied homes should be kept ‘low’ (these are not income generators), while income generating properties or once sold (and now subject to Stamp Tax) can be somewhat ‘higher’.

It should not matter ‘where’ a property is located, what is a “rich area” today may not have been when your grandparents built or bought their home...

Posted 14 July 2018, noon Suggest removal

Well_mudda_take_sic says...

You have made some excellent points here 'empathy'. I am firmly of the view that all property throughout the Bahamas owned by Bahamians that was designated/zoned as residential at the time it was acquired by the current owner should be exempt from real property tax up to a maximum of three (3) acres, no matter where the property is located and no matter whether or not it is developed or owner occupied, . All other property should be subject to real property tax. Such a policy is vital given that we are a small nation with a very limited amount of land available for the Bahamian people.

Posted 16 July 2018, 11:46 a.m. Suggest removal

bogart says...

Problem wid da rich is dat dey aint knows the suffering of the pore....VAT has efficiently extracted ..some $2,500,000,000.....thats some $2.5 billion dollars at 7.5% from 2015 from the incomes of all people ....many many pore and fewer rich.thats like ....all mostly pore people has money to buy food and basic survival necessities much less fix up the house wid blue tarpolin still on roof......lol.....rich jusin hav no clue people catchin hell calling it good time...
Truth be told many pore people would be worser off wid dis tax idea cause many pore has many chillren grandma auntie living in same house with add on with cheapest materials to build large sq ft house and plenty would be worser off payimg more tax.....an the rich 2 people 2 chillren 5 dogs an 4 cats wid own living area in house can have plenty marble tile house spend a fortune fer house on the beach....an pays even less than pore family living tru some juk juk corner.

Posted 14 July 2018, 12:16 p.m. Suggest removal

empathy says...

Understood...

That’s why Real Property Tax should “be kept ‘low’” on owner occupied dwellings.

Reform in this sector also means having everyone register their property and pay at least a nominal fee. This would mean having a built-in mechanism to reduced the fraud that leads to many of our less advantaged citizens having their properties stolen from them by unscrupulous thugs. Once a person’s property is properly registered at the Real Property Tax office/ IT system, it should be less likely that someone can ‘claim’ their real estate.

Posted 15 July 2018, 12:08 p.m. Suggest removal

TheMadHatter says...

"Truth be told many pore people would be worser off wid dis tax idea cause many pore has many chillren grandma auntie living in same house with add on with cheapest materials to build large sq ft house and plenty would be worser off payimg more tax.....an the rich 2 people 2 chillren 5 dogs an 4 cats wid own living area in house..."

Bogart - yes, that is the whole problem in a nutshell. POOR people "many children", rich people "two children". End of story. It's been this way a long long time, and just can't seem to change. I almost think poor people like being poor. They must, because they like forcing children to live in poverty.

Posted 15 July 2018, 12:14 p.m. Suggest removal

sheeprunner12 says...

Good idea .......... sliding scale based on combined square footage AND appraised value should be used....... because a 2000 sq.ft house in Lyford Cay should not be rated the same as a 2000 sq.ft house on South Beach or Garden Hills or Blair or Sandyport or Winton Heights.

Posted 15 July 2018, 12:47 p.m. Suggest removal

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