Thursday, June 6, 2019
By Neil Hartnell
Tribune Business Editor
A prominent realtor is urging the government to provide Hotels Encouragement Act-style incentives specifically for the vacation rental market to better empower Bahamian investors.
Mario Carey, pictured, founder of Better Homes and Gardens Real Estate MCR Bahamas Group, is adding his voice to calls for the Minnis administration to balance stimulating local investment in the sector with ensuring there is a taxation “level playing field” with the hotel industry.
While backing the government’s efforts to levy VAT on vacation rentals via the online sites that market them, Mr Carey suggested the sector needed its own specific, targeted investment incentives rather be lost under the wide net of the Hotels Encouragement Act.
“I like the fact how they’re exploring Airbnb,” he said of the 2019-2020 budget’s taxation proposal, “but they should also explore Airbnb from an entrepreneurial side. How do you empower Bahamians to enter that market in some shape or form through investment.
“Instead of falling under the umbrella of the Hotels Encouragement Act, how can they come under an Airbnb/Vacation Rentals Encouragement Act to get incentives? We need to encourage Bahamians to enter this tourism market and compete with the big hotels. Everybody wins from that. One hundred percent.”
Besides levelling the taxation “playing field” between vacation rentals and hotels/guest houses, Mr Carey said the development of targeted investment incentive legislation will help increase Bahamian ownership in the tourism industry and spread its economic benefits more widely through the community, as well as boosting government revenues.
“You always want to empower people to be entrepreneurs,” he added. “We need to make changes, but that investment needs incentives similar to hotels. The Government is looking at how to tax it, but they should also say how can we enhance it, improve on it through policy.
“This stimulates Family Island growth, stimulates real estate growth, and enhances the tourism product.” Mr Carey said the vacation rental market should be linked directly to the Ministry of Tourism’s long-standing people-to-people programme, as it provides the accommodation to “give visitors a flavour of The Bahamas in a different way and encourage interactive experiences”.
Mr Carey also suggested that Bahamian vacation rental owners should be able to use their histories and track records with the likes of Airbnb to develop “profit and loss statements” that would enable them to qualify for commercial bank loans.
The government is “conservatively” estimating it will realise between $8m-$10m per year from levying VAT on vacation rentals, and is in the process of contacting websites and marketplaces to ensure they became VAT registrants and collect and remit the 12 percent levy on its behalf.
KP Turnquest, deputy prime minister, acknowledging that vacation rentals provided an opportunity for Bahamians to obtain an ownership stake in the tourism industry, and spread the wealth among entrepreneurs and communities that traditionally have had little contact with tourists, when he unveiled the 2019-2020 Budget.
But, arguing that the sector needed to pay its fair share to maintain services and infrastructure, he said: “We are mindful of the uneven playing field that this has created concerning hotels and have moved to level the playing field. As such, all online marketplaces that advertise and facilitate vacation rentals in The Bahamas will now be required to pay VAT on their rental and related sales in The Bahamas.
“Thus companies such as Airbnb, HomeAway, VRBO and all such marketplaces with short-term rentals in The Bahamas will be required to pay VAT. I can advise today that some of these online marketplaces have already become VAT registrants and have been paying VAT, and we are in the process of ensuring that the outstanding e-commerce service providers are made compliant.”
Airbnb had already been levying VAT on the $20-$30 it charges Bahamian homeowners to promote their properties since May 2019, but it is unclear whether the Government will also impose - and, indeed, if it is able to impose - the 12 percent tax on the income earned by local industry players if they make more than $100,000 per year.
Matt Aubry, executive director of the Organisation for Responsible Governance (ORG), which commissioned an Oxford Economics report that identified vacation rentals as a sector that offered possibilities to grow and diversify the economy while creating Bahamian ownership, previously echoed Mr Carey in urging the Government to ensure its tax plans do not “throw the baby out with the bath water”.
Acknowledging its interest in ensuring a taxation “level playing field” with the hotel industry, he added that the Government also needed to examine how it could incentivise vacation rentals and their links to other Bahamian sectors such as light industries and agriculture - especially in the Family Islands.
“We have to make sure we’re not going for nickels while throwing away dollars,” Mr Aubry told Tribune Business, adding that vacation rentals needed to be viewed “as a really important opportunity for the Bahamian economy, as it opens the door for Bahamian ownership in tourism and we should look at ways to grow and incentivise this market.
“Along with a tax what kind of incentives are we going to put together? We don’t want to see it as a short-term gain. We want to see this as something that leads to growth that is sustainable and facilitates local economic development. We can’t see this as a way to fill gaps in this Budget cycle.”