• PM: Just 8% of $190m collected on $1m-plus deals
• But discrepancy with Budget data showing $81.45m
• Attorney asserts that low figure is ‘hard to believe’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister’s assertion that the Government has collected just 8 percent of its VAT target for high-end real estate sales was yesterday branded “shocking” by industry professionals.

Andrew O’Brien, the Glinton, Sweeting & O’Brien law firm partner, told Tribune Business he found this “hard to believe” after Philip Davis KC, in unveiling the 2024-2025 Budget communication, revealed that the Government had received just $15.1m of its $190.3m full-year target for VAT levied on real estate deals worth $1m and over.

“That sounds very unusual,” he said. “That’s shocking that it’s that different. It certainly seems like the high-end market is robust from our perspective. I wonder. That’s surprising. I don’t know. Is there some accounting hiccup in how they’re dealing with those funds because it does sound very unusual. It sounds really low, alarmingly low, and I find it hard to believe.”

An “accounting” issue could be involved. For the Budget book, which sets out all the Government’s revenue and spending figures for the present 2023-2024 fiscal year to-date and upcoming 2024-2025 period, provides a much different figure than that given by Mr Davis for VAT collected on $1m-plus real estate sales during the nine months to end-March 2024.

The Budget book gave $81.454m as the figure for how much had been generated from this revenue line item during that period - a sum more than five times’ greater than that cited by the Prime Minister. The discrepancy was not explained before press time last night, with Simon Wilson, the Ministry of Finance’s financial secretary, attending a Customs conference and unable to comment.

However, Mr Davis yesterday told the House of Assembly that VAT collected on high-end property sales was nowhere to reflecting real estate market activity based on the number of economic permanent residency and international persons landholding permits being issued by the Government.

“The area of revenue under-performance which became apparent during these nine months is the VAT on real estate transactions. For example, if we look at the budget forecast for VAT on realty transactions over $1m, it is $190.3m,” Mr Davis said

“At the end of March 2024, we have only collected $15.1m or 7.9 percent of this total. It has also been observed that the certificate of residency and international holding permits issuances are consistent with balance of payments data that shows strong inflows of funds for property purchases.

“Last year’s revenue intake of this item was $121.1m. These are the reasons why it is necessary for this government to take a deeper dive into the under-performance of this category of revenue.” He added that this is set to be tackled by “implementing legal and administrative measures to improve compliance” through legislation and regulation accompanying the 2024-2025 Budget.

To close potential tax avoidance loopholes, Mr Davis said economic permanent residency applicants must now produced a stamped conveyance - proving they have paid the due 10 percent VAT on their purchase - to the Department of Immigration before they can obtain their permit.

Further cracking down, economic permanent residency applicants seeking to qualify by purchasing real estate (see other article on Page 1B) must also provide an appraisal report no more than a year old to prevent tax avoidance through the submission of a contrived, lower price than was actually paid. A real property tax assessment number must also be provided to the Immigration Department.

“This administrative step will help streamline the process and ensure that the real property tax number is carried throughout all processes across all government agencies, which would allow for auditing to ensure that the correct tax amount is being paid,” Mr Davis said.

“We have discovered that information provided by the local real estate sector about the buoyancy of the high-end real estate market is not reflected in the Government’s receipts.

“We have witnessed a sizable drop in revenue this year for this category. This is the primary underperforming revenue item that we have identified, and we have included a number of administrative measures to address the underreporting of real estate transactions.”

In a bid to further plug loopholes, the Government tabled changes to the International Persons Landholding Act that - if passed - will see permits expire if VAT or real property tax is not paid within 90 days of the tax assessment or “requisite return” deadline.

And the Davis administration is also launching a six-month amnesty, set to expire on December 1, 2024, to entice persons who have failed to present their conveyances for stamping and payment of the required VAT/Stamp Duty to finally bring those documents forward.

The incentive is that conveyances will be stamped at the value when the real estate transaction took place, rather than at the now-higher market value, thus cutting tax payments for those who do come forward.

“The Government is aware that there are a number of unstamped documents held by persons, which results in these persons not being able to prove land ownership to the Department of Inland Revenue and otherwise,” the Prime Minister said.

“This is an impediment for development and commerce in this country. So, the Government has made the decision to grant amnesty to allow documents to be stamped at the value at the time in which the transaction took place rather than at the current market value. This regime is temporary and effective immediately with an expiration date of December 1, 2024.

“This is a significant concession. At present, all documents are stamped at their current market value, regardless of when they were purchased. For example, suppose an individual purchased a property thirty years ago for $25,000 and sold that same property for $50,000, but never stamped the documentation,” he added.

“Later on, a new prospective buyer wants to acquire the property through a mortgage. The property now has a small house on it that is worth $150,000. In order to have the property financed, all of the transactions for the last 30 years need to be recorded; that is, to have the VAT paid at the current market value of $150,000 plus penalty.

“Unfortunately, this is all too-often a deal breaker, preventing the transaction from moving forward, hurting both the buyer and the seller, and acting as a drag on the real estate market.” Mr O’Brien yesterday described the amnesty proposal as “reasonable”, adding that the 10 percent late penalty should remain, but said it was”unusual” for buyers to delay as it left them exposed to significant risk.

“I do think the penalties should still apply so people aren’t encouraged to hang on to conveyances for however many years until this [amnesty] comes around again,” he said, adding that failing to have land deals recorded in the Registry of Records leaves buyers exposed to significant legal and financial jeopardy that could cost them their purchases.

“I would say it’s unusual because you cannot record your conveyance until it’s stamped, and recording protects you from the vendor selling to someone else, it protects against title disputes and judgments entered against the previous owner. I’m surprised.”