By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday urged to “pull out all the stops” for Bahamian ownership and participation in vacation rentals amid expectations its tax compliance push may drive some to exit the market.

Thomas Sands, the Eleuthera Chamber of Commerce’s president, told Tribune Business that The Bahamas needs to balance adherence to the applicable tax laws with the provision of incentives that “empower” Bahamians to gain an ownership stake in tourism which is the country’s largest industry and economic driver.

He argued that this was the only way “to retain as much of the capital being spent in this space in local communities and the domestic economy”, as opposed to it leaking out of The Bahamas as foreign currency, adding that vacation rentals play a valuable role in “filling the void” when Family Island resort inventory cannot meet visitor demand.

Speaking as the Department of Inland Revenue launched a review of “taxpayers’ compliance with the tax laws”, specifically in a bid to crack down on non-compliance in the vacation rental sector, Mr Sands told this newspaper that - while he supported the need for all legitimate businesses to pay their fair share - there was a likelihood that perceived or real “red tape” will force some owners to close their doors.

“The reality is that if you operate a business you have got to be compliant,” he said. “I think there are a lot of people who want to find the correct approach to compliance as a business, and we encourage them to do that. Compliance is important.

“I think, though, that some people will find it burdensome and not worth making, so I think some properties will exit. That will affect the market. We already have a challenge with accommodation period. I think a lot of people may, more as a result of what they perceive as red tape, make a decision not to do it and some percentage of people will decide to sell their properties if that’s the driving force.

“But the reality is, if I’m operating a business, I try to make sure we are compliant and pay the due taxes and fees. That’s the normal way to operate whichever country you are in. It’s also important to discuss it and make it as easy as possible to comply. Yes, there will be some people electing to exit the market, and that will have a net negative effect.”

Mr Sands, whose island is home to a significant vacation rental presence, told this newspaper that the Government, in effect, has to ensure it does not throw the baby out with the water through enforcement mechanisms that make it too costly, difficult and time-consuming for vacation rental property owners to pay their taxes and file their returns.

Calling for a balanced approach, he added: “We’re back on these incentives and concessions for Bahamians to participate in this economy as owners. I think Bahamians should be incentivised to build more vacation homes through the Family Island Development Act; through its full intended use, and make it easier for Bahamians to participate by lowering the cost so they can fill the void.

“The opportunity is to incentivise domestic investment in this field. Pull out the stops to encourage more Bahamian participation, and understand the market and what the market needs so we fill the gap and retain as much of the capital being spent in this space as possible in local communities and the domestic economy.

“The reality is most of the homes in that space are foreign-owned, the very successful ones, but we need to build an industry that’s conducive and encourages domestic investment, and keeps the bulk of these revenues in the country. If we want our people to participate legitimately, we provide empowerment so we retain as much revenue as possible in the country. That comes from empowering the Bahamian population.”

Tribune Business can reveal that the Department of Inland Revenue, working with the Government’s US-based consultant on vacation rental taxation, has issued a letter that Bahamian property owners started to receive last week.

The letter, which has been 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 adds 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, are 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, will 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.

However, the Department of Inland Revenue letter was met with scepticism by some because it contained what appeared to be an incorrect e-mail address that resulted in their replies bouncing back. Pam Burnside, of Doongalik Studios, told Tribune Business she was fearful her e-mail and computer may be compromised after her reply was rejected. It caused her to question whether it was genuine.

“The e-mail address they had listed for you to write in and say you are not involved with it is not correct. My e-mail bounced back,” she said. “The problem is that is where people send it if they are compliant or not involved in vacation rentals. I was a little bit suspicious, especially in this day of artificial intelligence (AI). I tried to say I’m not in the vacation rental business.”

Ms Burnside agreed that the Department of Inland Revenue letter appeared to be a “fishing expedition”, with other contacts telling this newspaper it seemed as if the tax authority and its US consultant, Avenu Insights, had just dispatched it to anyone they have an e-mail address for regardless of whether there is any evidence they have a vacation rental and are non-compliant.

“Obviously they are just sending it out to anybody on their list,” Ms Burnside added. “They are probably looking for the taxes with people who have second homes here. Then we, the innocent public, get put through all of this foolishness because of what other people are doing in not following the law, and we’re trying to do our bit to be honest citizens. It’s not right.”

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. The Ministry of Finance has been targeting the short-term vacation rental industry for some time, viewing it as an untapped lucrative source of new revenue, especially multi-million foreign-owned homes rented out for thousands of dollars per say.

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.