March 13, 2013
An international rating agency is placing more emphasis on the successful implementation of value-added tax (VAT) than reform to property tax.
Moody's said VAT has the potential to be a "game changer" for The Bahamas' economy. While property tax is certainly an appealing revenue stream, its administration is difficult in many places around the world, according to Edward Al-Hussainy, assistant vice-president and analyst at Moody's.
Owners refusing to pay or register, and undervaluing their properties, is not unique to The Bahamas.
"Every large, rich country has struggles with it," he told Guardian Business. "Given the amount of money it brings in, I think VAT and customs are more important."
Al-Hussainy noted that this country's appeal to second-home owners from abroad makes the situation more complicated. If you raise taxes too much, or become overly stringent, the jurisdiction can become a less attractive destination for this demographic. The Bahamas could close out on other sources of revenue, such as the construction market, foreign-direct investment (FDI) and other benefits of having second-home owners in the country.
"Somewhere in there is a balance where you enforce taxes and laws and make things transparency and easier to administrate," he told Guardian Business.
The comments from Moody's serves as the first foreign perspective into property tax since the government announced its revamp of the system.
Late last month, the Progressive Liberal Party (PLP) introduced an amnesty program whereby homeowners that have traditionally avoided property tax or stayed off the register entirely can step up to the plate.
It is estimated that up to 30 percent of properties in The Bahamas are not registered at all. Even more do not pay regularly despite being on the books.
Dionisio D'Aguilar, a well-known businessman, recently blasted the government's plan and urged real consequences for offenders. The owner of Superwash argued that Bahamians seeking to evade property taxes will continue to do so unless they are forced into compliance.
"If we don't see the consequences, we won't comply," he said. "Rather than giving me amnesty, double the tax and confiscate the property if I don't register my property."
Al-Hussainy told Guardian Business yesterday that Moody's welcomes the introduction of a Central Revenue Agency to help bolster compliance for all taxes and revenue streams. Coming up with new sources of revenue is significant, he said. But tax administration must accompany any reforms."You can have whatever laws you want, but if you are not able to enforce them, people won't comply. You need to have the right enforcement agency," he explained.
Michael Halkitis, minister of state for finance, recently announced that the CRA would collect 90 percent of all taxes. The government has identified an initial location for its operations and the relocation of employees to this building should occur in the near future.
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