Bahamian realtors and attorneys will themselves be held "liable" for covering any unpaid VAT on real estate transactions they have handled under legal reforms proposed by the Government.

The VAT (Amendment) (No2.) Bill 2025, tabled in the House of Assembly last week alongside the 2025-2026 Budget, seeks to repeal and replace the existing Act's section 61B with a new section that gives the payment of VAT on property deals "priority" over all other fees and commissions generated by the transaction, such as those earned by attorneys and realtors.

Then, having created a kind of 'creditor's queue' that places VAT in the front, the Bill stipulates that "every person" who receives a payment related to a real estate transaction ahead of the Government's taxes will become "jointly and severally liable" for covering the latter if they are unpaid.

This appears to imply that the Government will, if the Bill passes into law, be able to claw back any unpaid VAT on real estate sales by seizing or clawing back the outstanding sum from the fees and commissions paid to realtors and attorneys on the same deal. The Bill states that the size of any liability will be "the lesser of" fee or commission paid, or the unpaid VAT that has been assessed.

"VAT assessed as payable on the supply of real property shall have priority over the payment of any fees, commissions or other amounts earned, generated or otherwise payable in respect of that supply," the Bill as tabled in the House of Assembly stipulates.

"Where any such fees or amounts are paid in priority or preference to the VAT payable on that supply, every person who receives a payment shall be jointly and severally liable to the extent of the lesser of the amount received by the recipient; or the unpaid VAT assessed on the supply of the real property."

This is further confirmed by the VAT Bill's 'objects and reasons' section, which adds: "Clause 15 of the Bill provides for VAT on real property to take priority over other payments. Liability to ensure VAT is paid in priority may extend to recipients of funds." 

The move appears to be part of the Government's drive to crack down hard on what it believes is significant tax evasion and avoidance involving the VAT due on Bahamian real estate sales. This change further shifts the compliance burden on to Bahamian professionals, such as realtors and attorneys, by incentivising them to ensure their clients pay all VAT due and owing or else they will be on the hook.

Mike Lightbourn, Coldwell Banker Lightbourn Realty's president, yesterday told Tribune Business that the latest Budget law amendment to be exposed was "unbelievable" and "outrageous" and required further clarification. He challenged whether, if the Government reclaimed 100 percent of the unpaid VAT from the realtor's commission, the attorney was "off the hook" and asked how the burden is shared;

Prime Minister Philip Davis, in unveiling the 2025-2026 Budget, foreshadowed the real estate VAT crackdown but did not detail the measures that the Government was proposing. "This administration believes that VAT on real estate is still not being captured fully. We will be proposing additional measures to close loopholes in the collection of this tax," he said in the House of Assembly.

While few would oppose the Government's objective to collect all taxes due and owing to it, a number of the planned measures are likely to be viewed and perceived as draconian. Realtors have also been made "jointly and severally liable" to pay a penalty, equal to 3 percent of the transaction price, if they fail to disclose the sale of "newly-constructed dwellings" or land for this purpose within 30 days of closing.

In addition, proposed changes to the Conveyancing and Law of Property Act will render all conveyances, deeds and real estate transactions since July 1, 2022, "void" and having no legal status or effect unless they are recorded in the Registry of Records. This is again designed to ensure all VAT due is paid because such documents cannot be recorded without proof that taxes on the sale were received.

The VAT Bill, meanwhile, also introduces more severe penalties - financial and imprisonment - for persons "who knowingly, or under circumstances amounting to gross negligence" under-report the value of real estate transactions and, by extension, the amount of tax due to the Government on the sale.

"Clause six of the Bill introduces penalties for making false VAT declarations in property transfers. Where a person makes a false VAT declaration, a tiered penalty is imposed based off the percentage of the underreported amount," the 'objects and reasons' section states. And the penalty could even see the Department of Inland Revenue seek the "forfeiture" of the subject property via the Supreme Court.

"Where the tax payable was underreported by an amount that is greater than 50 percent, the comptroller may, having regard to the amount underreported and the circumstances, assess a penalty equal to the value of the real property and apply to the Supreme Court for an order for forfeiture of the real property," the Bill to amend the VAT Act stipulates.

If VAT is under-reported by 50 percent or more, the Bill says the fine will be 100 percent of the under-reported sum. If the under-reporting is between 25 percent to 50 percent of the VAT assessed as due, the penalty is fixed at half the avoided amount, and if the VAT under-reporting is equal to 25 percent or less then the penalty will be 25 percent of the under-reported sum.

Persons found guilty of attempting to avoid, or evade, VAT on real estate sales will face a fine upon conviction of between 50 to 200 percent "of the amount of tax that was sought to be evaded", or imprisonment for a maximum two-year term. The Government is also bidding to impose interest at Bahamian Prime plus 1 percent on all unpaid VAT, and this will take effect after 21 days on property sales.

Mr Lightbourn, though, argued that the Government also needs to develop a better, more timely and clear mechanism for compensating taxpayers found to have overpaid VAT on real estate transactions. "The biggest problem is over-assessment of VAT on real estate transactions," he told Tribune Business of the Department of Inland Revenue.

"They don't know what they're doing and don't want to admit to mistakes. If we point out this similar property sold for 'x', why charge '2x' on something with the same value? They take months to come back to you in some cases."

As for the Government's legislative crackdown on VAT under-reporting, Mr Lightbourn added: "I'm not concerned about my office. I don't know of any situation in my office where someone under-reported. I've never tried that. I don't know what to tell you. I don't know of any reputable real estate companies that do that, and proper lawyers who do that.

"This thing should be on the reverse side if they over-assess you and say it's worth way more than the market and what you actually paid for it. The only way to complete the transaction is to over-pay the VAT. The person who over-pays on VAT should have the same rights in reverse. 

"It may cut out the tiefing, but it won't cut out the over-assessment. That's the other side of the fence. Maybe they should have a Department dealing with questionable assessments. It's not just VAT; it's real property tax. The two of them tie together."