Approximately $50 million of revenue enhancement measures were announced yesterday by Prime Minister and Minister of Finance Dr. Hubert Minnis, including the government’s aim to generate $31 million from charging value-added tax (VAT) on the full value of vacation rental properties and an additional $4 million from an increase in VAT on luxury real estate transactions.
Following amendments to the Value Added Tax Act in 2019, vacation rental marketplaces such as Airbnb began to charge VAT on guest service fees on behalf of host property owners and remit those funds to the government. According to Airbnb, most guests pay a service fee that is under 14.2 percent of the booking subtotal. However, the prime minister said the government’s intention is to have VAT charged on the total value of the booking. The prime minister said this measure sets the stage for greater equity in government taxation and ensures that all parties pay their fair share and all businesses can compete on a level playing field.
“My administration has made several statements regarding the untapped potential of the vacation homes market and the millions of tax dollars that go uncollected each year. We are amending the law to clarify that all vacation home marketplaces, such as Airbnb and VRBO (Vacation Rentals By Owner), are required to pay VAT on rentals and commissions. Those marketplaces that are charging VAT presently have interpreted the legislation as being only applicable to the commissions paid out,” he said while delivering the 2021/2022 annual budget communication in the House of Assembly yesterday.
“The clarification in the law will make it explicit, VAT will be applicable on the full value of the rental. Our plan proposes several amendments and clarifications in respect to tax law and tax policy that will provide incremental revenue for the government. By amending the requirements from the vacation home rental market as mentioned, we estimate $31 million in increased government revenue.”
The most recent data provided by vacation rental data and insights company AirDNA in The Central Bank of The Bahamas’ (CBOB) economic developments report showed the short-term vacation rental market saw a 64.8 percent increase in total room nights sold in March, with bookings for entire place listings and hotel comparable listings increasing by 65.9 percent and by 55.4 percent, respectively.
Earlier this year, President of the Bahamas Hotel and Tourism Association Robert Sands contended that the vacation home rental market does not currently pay its fair share as a tourism industry player.
VAT increase
The prime minister also announced an increase of VAT from 10 percent to 12 percent on real estate transactions for luxury properties valued over $2 million and a crackdown on tax collection from owners who rent commercial properties.
“Presently, all transactions of $100,000 are subject to 10 percent VAT. With the amendment, any portion of a transaction that is over $2 million will be charged at the full VAT rate of 12 percent. We anticipate this adjustment will yield an additional $4 million,” he said.
“We are introducing legislative amendments to improve real property tax collections for commercial properties. We have had situations where owners of significant commercial properties collect substantial rent from businesses but are delinquent in the payment of taxes. The legislative enhancements will permit the government to have those rents paid to the Department of Inland Revenue (DIR) for delinquent commercial property tax owners.”
The prime minister also said the government plans to amend the Value Added Tax Act to make new provisions which would require property owners to inform the Department of Inland Revenue when they are shifting the use of their owner-occupied home into a residential or commercial rental property, to ensure that buildings are properly classified.
“We are also amending the Value Added Tax Act to assist businesses that tend to remain in a habitual credit position with the DIR, due to the nature of their business. We are codifying provisions that, up to now, had just been VAT rules and which permit appropriate accounting treatments to be used to address VAT liabilities without putting businesses in an unsustainable cash flow deficit,” he said.
“This will avoid the situation where some groups of businesses have to put out substantial amounts of cash even when they are in a credit position, only to have to wait for a refund from the DIR.”
The prime minister pointed to the recent upgrade of the DIR’s real property tax roll, which added approximately 14,000 properties to the roll and increased the value of taxable properties by $9 billion. He said the initiative should result in an anticipated $14 million in increased real property tax revenue for the government.
This all comes amid the government’s push to transform the tax structure in The Bahamas.
The prime minister yesterday promised the government would undertake a comprehensive, diagnostic exercise to study this nation’s tax policy and tax administration.
“This study will examine the government’s current sources of taxation, revenue trends and will explore issues such as equity and efficiency in our tax practices,” he said.
“At the completion of this exercise, we intend to publish the findings in a white paper to garner feedback from key stakeholders and the general public on how the government should proceed with our ongoing tax reform efforts.”
The government is also increasing the excise tax on cheroots and cigarillos to bring them in line with that of conventional cigars.
The post Govt seeking revenue boost from real estate VAT increases appeared first on The Nassau Guardian.
source https://thenassauguardian.com/govt-seeking-revenue-boost-from-real-estate-vat-increases/
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