The government intends to remove the stamp tax applied to real estate transactions and replace it with value-added tax (VAT), Deputy Prime Minister and Minister of Finance Peter Turnquest announced yesterday, effectively closing a loophole in which companies purchasing property in The Bahamas evaded paying the required 10 percent stamp tax.
During his presentation of the 2019/2020 budget, Turnquest revealed the government’s intention to amend the Stamp Tax Act and Value Added Tax Act to reflect that realty transactions will now attract VAT at the same 2.5 percent and 10 percent rates currently attracted for stamp tax on real estate transactions.
“Last year we moved it, real property tax, out of the VAT regime and into the stamp tax regime but because of international developments, we’ve had to move it now back to real property tax. We had to do that because in the previous year we moved it to stamp tax because what was happening was companies were paying the value-added tax on real property tax and then claiming it back, and so effectively their stamp tax was 2.5 percent. Whereas an individual who would have bought property would have been paying the full ten percent. So that is obviously unfair and was an unintended consequence of the law,” he said.
“And so, we changed it to put it all into stamp tax, not anticipating the changes we would have had to make as a result of all of the international negotiations we had last year. So, this year we’re putting it back but we have made the stipulation that value-added tax cannot be claimed, so you cannot get a refund for value-added tax claimed on a real estate transaction. So, we fixed the loophole.”
VAT will not be applied, however, to gifts of real property to immediate family for purposes of legitimate estate planning, with the provision that the tax will become payable if the recipient seeks to sell the property within seven years of receipt, Turnquest noted.
Additionally, the government intends to increase the current cap on real property tax payments of “owner occupied” residences from $50,000 to $60,000 per annum so as to augment revenue capture for higher-end properties.
Turnquest said there are as many as 9,000 unregistered properties that are evading real property tax that government anticipates can provide an annual boost of $21 million in real property tax collections.
“Earlier this month, the government announced the complete revamp of the existing, antiquated real property tax system. Starting with a massive data collection initiative that will update the real property register, the first phase of this project is expected to add as many as 9,000 unregistered properties to the tax roll,” he said.
“It will bring fairness and transparency to the property valuation process by establishing objective, local and internationally accepted measurements that are critical for property tax assessments. Eventually, there will be a public, online database of property values for tax purposes.”
The project is expected to create up to 40 jobs for Bahamians and will last approximately 18 months.