By FAY SIMMONS 

Tribune Business Reporter 

jsimmons@tribuneemedia.net

Bahamians were yesterday encouraged to report neighbours with undeclared short-term vacation rentals to the tax authorities who have “flagged” more than 20,000 such properties as not registered.

Shunda Strachan, the Department of Inland Revenue’s acting controller, said a recent study - which was not disclosed - estimated that only 20 percent of existing short-term vacation rentals have complied with the need to register their properties with the tax authority. And, in addition, only 15 percent of the properties and owners who should be paying VAT to the Government are registered.

Speaking at the Office of the Prime Minister’s weekly media briefing, Ms Strachan said these findings sparked the Department of Inland Revenue’s recent issuance of letters to property owners seeking their help to “get the arena in line” and report short-term rentals in their neighbourhoods. Many Bahamians, though, viewed the move as a “fishing expedition” and tax grab.

“We noticed that there are over 20,000 short-term vacation properties throughout The Bahamas that we have flagged,” Ms Strachan said. “I know there are more, but that’s just what we have discovered. And out of that amount, we would say only about 20 percent of them are really registered on the short-term vacation portal.

“It should be 100 percent. Only 20 percent registered on the short-term vacation portal right now, and only 15 percent that should be paying VAT are registered for that and that is a concern. We think it’s more, but we’re concerned to at least get the 20,000 registered on the short-term vacation portal, and those that need to be registered for that, we’re trying to get them registered for that.

“And so that was the purpose of the notices being sent out. It was really to get Bahamians to help us to kind of get that whole arena in line.” The Government has long viewed the short-term vacation rental sector as a potentially rich new revenue source that is under-taxed, especially multi-million dollar foreign second homes whose owners rent them out for up to five-figure weekly sums.

Ms Strachan said that although most Bahamian homeowners misunderstood the notice as an intent to tax them, the motivation to send it out was to identify undeclared short-term rental properties so they could be added to the Department of Inland Revenue’s register.

“Most Bahamians when they got the notice said: ‘Oh God, they’re trying to tax me’. But no, not really. You kind of got the notice because we are actively trying to determine who is renting property. Everybody who got the notice, it doesn’t mean that we’re planning on taxing you because, on average, Bahamians do not pay taxes in the short-term vacation rental arena,” said Ms Strachan.

She highlighted that several factors prompted the notice to be sent out, and encouraged Bahamians to identify properties in their area that they suspect are being operated by foreign entities as short-term vacation rentals.

“If you’re a Bahamian and you got a notice, and you don’t have a short-term vacation rental property, that’s fine. It means that we know that there’s a property being rented somewhere on your corner, maybe, or somewhere in your vicinity, or maybe you have a property that has those new fancy key punches, you know, those new locks now - not key lock, but key punch locks,” said Ms Strachan.

“There’s several things that triggered us, and that kind of give us clues that properties in a particular area are being rented. And so we’re asking for the our partners’ help - the Bahamian people. We’re asking for your help and just helping us to know who’s in the business of renting properties.

“And we’re hoping by doing that, we will really be able to expand the industry, help to incentivise the industry, of course, and to give benefits to those that want to participate in the industry of short term vacation rental.”

Ms Strachan added that foreigners on multiple Family Islands are operating short-term rentals without paying taxes, and asked Bahamians and residents for assistance in identifying these properties.

“If you are on an island, and you know only foreigners rent properties around here, then you need to help us make sure that they are paying the taxes that are due to you. That’s your tax, right? They’re in your country, they need to pay the taxes. You have to pay it. I have to pay it. So we need to make sure that those non-Bahamians are paying their fair share,” said Ms Strachan.

“For emphasis, again, if you’re foreign, you have to pay VAT if you’re in that area. Bahamians, it depends on the level of business that you’re involved in. We’re not looking for you to be registered [pay taxes] unless your turnover is over $100,000 but everybody has to register in the short-term vacation portal.”

The Department of Inland Revenue, working with Avenu Insights, its US consultant, issued the letter that Bahamian property owners started to receive in late July as part of a review of “taxpayers’ compliance with the tax laws” of this nation. It made no distinction between Bahamians and foreign owners of vacation rentals, and who should pay taxes.

The letter, which was obtained by this newspaper, says the assessment’s “primary purpose” is to identify short-term vacation rentals that are either operating without a valid Business Licence or failing to levy, collect and remit VAT on the rent paid by tourists to the Public Treasury.

It added that those receiving the letter are being targeted because “a recent review” indicates they either own, and/or have advertised and listed, a short-term vacation rental without it being registered with the Department of Inland Revenue and Ministry of Finance.

Even those who have been targeted incorrectly, and do not own a short-term vacation rental property, were required to reply to the Department of Inland Revenue with “a written statement describing your circumstances”. Also, property owners who are registered and fully paid up-to-date with their taxes, now have to submit proof of this to the tax collection agency.

Persons who are non-compliant are being given just seven business days to complete the registration process. They will also have to provide a copy of their rental agreement; real property tax certificate; and a “consent letter” from their community’s developer or copy of its “ordinance”. The latter is likely designed to check compliance with zoning regulations.

As with the recent boating fees controversy, The Bahamas has a sovereign right to determine who, where and how it taxes and set the rates accordingly. Some have also blamed short-term vacation rentals for creating shortages of local housing, especially long-term rentals and particularly in the Family Islands, as landlords opt for the greater yields available from tourists.

This is also seen as having driven up long-term rental rates and priced Bahamians out of the market. However, there have also been calls for a balanced approach amid fears that the Government, in its desire to attract more revenue from short-term vacation rentals, could over-tax visitors and owners and, in so doing, shrink a valuable tourism market segment that helps to spread tourism dollars at much lower community level.

Footnote

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Only 15% of VAT liable

owners paying due tax