By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-deputy prime minister yesterday urged the government to develop a US Internal Revenue Service-style mindset to collect taxes “without fear or favour” while slamming proposed new compliance measures.

K Peter Turnquest, who was also finance minister until late 2020, told the House of Assembly that proposals to leave business tenants “on the hook” for real property tax debts owed by their landlords “cannot be right and what is intended” by the Minnis administration in legal reforms accompanying the 2021-2022 budget.

Calling on the government to abandon “political expediency” in all tax compliance/enforcement efforts, Mr Turnquest hit out at reforms to the Business Licence Act which will legally mandate that businesses renting space in offices, retail malls and other commercial properties must pay their rent directly to the Department of Inland Revenue - and not their landlord - if the latter is in arrears on real property tax payments.

Business tenants that fail to comply will be denied the renewal of their annual business licence, and the former deputy prime minister blasted the legislative changes for interfering in the contractual relationship between landlords and tenants. He also argued that the move was unnecessary given that the government already possesses multiple means to collect real property arrears.

“This Bill likewise seems to cut against the fairness principle, and like mortgage or rental relief, seeks to interfere in the tenant/landlord relationship. The Bill seems to pass the responsibility for real property tax delinquency to the tenant versus the actual owner of the rental property, under penalty of law,” Mr Turnquest said. “This cannot be right and what is intended....

“I recommend a much more palatable collection effort for real property tax, and a legal one, and not one that causes a tenant, a licensee, to be on the hook for the debts of someone else.” He instead urged the government to enforce the existing real property tax collection laws “with certainty of timelines and commitment”, acknowledging that a mindset and cultural change was required to achieve this.

“The reason the IRS (US Internal Revenue Service) is so successful and feared is because they commit to definite timelines and certainty, and they act without fear and favour,” Mr Turnquest asserted. “We have to build that into our culture. It goes against political expediency and wanting to help people, but revenue management and collection has to be uppermost.

“It has to be all of this. The only way to get fairness and equity and collect what the state is owed.” The former deputy prime minister urged the Government to reform the Real Property Tax Act to require mortgage lenders to pay the tax on behalf of borrowers, and simply add the sum involved on to the loan, rather than follow through with the Business Licence proposal.

Mr Turnquest said he did not understand why some banks and mortgage lenders were reluctant to agree to this given that real property tax arrears acted as “a first lien” on real estate, and were therefore superior to the loan security they had, thus representing a “real liability” to them. He acknowledged, though, that mortgage lenders were unlikely to want to take on payment of existing real property tax arrears.

Bahamian realtors have already voiced misgivings over the proposed Business Licence amendments, but Marlon Johnson, the Ministry of Finance’s acting financial secretary, gave no indication that the Government is preparing to change its mind as he pointed to its ability to “garnish” rents to secure tax debts owed.

David Morley, whose firm is one of The Bahamas’ largest commercial property managers, previously told Tribune Business that the Minnis administration was likely to create “a whole bunch of mortgage defaults” and other problems if it follows through with plans unveiled yesterday to tackle real property tax deadbeats.

“Most commercial property leases are structured on a net lease basis, net of the rent and common area maintenance (CAM) charge,” he explained. “What takes place is that included in the CAM is the tenant’s portion of the real property.

“In all fairness, if the Government wanted to go after the tenant, the tenant should only be responsible for their portion of the rent.... It would only be fair to take that share of the property tax that the tenant is supposed to pay to the landlord, not the whole thing [rental payment].

“Grabbing all the rental income is wrong. Get the tenant to pay the portion of the real property tax that they pay to the landlord, and pay it to the Department of Inland Revenue. There’s a lot of things in play that really cause an issue on this. Who is the Government going after here? Are they going after the tenant, are they going after the landlord, or the rental income to pay a mortgage?”

However, Mr Turnquest asserted yesterday: “Mr Speaker, the existing real property tax law gives the chief valuation officer wide powers to collect real property tax or to obtain liens and to satisfy the same in accordance with law.

“I contend that the legal ability to collect the real property tax has never been in doubt. What is in doubt, and has been the issue, is the certainty of action and commitment to collect the tax. I’ve experienced it myself and had to fight through some interference to do what is right for the wider majority of taxpayers who fulfill their obligation to the state, without incentive I might add.”

Referring to the Tyler Technologies project to update the real property tax roll, which was initiated by the former Christie administration and restarted under the current one, Mr Turnquest said the Government had previously been in the position where properties had changed hands multiple times but bills were still being sent to old owners or incorrect addresses.