Recognizing that there are still "gaps" in the draft legislation, a top attorney has argued that introducing a value-added tax (VAT) this summer will force a "downward pressure" on professional fees in the real estate sector.
According to Christel Sands-Feaste, a partner at the law firm Higgs & Johnson, as it stands VAT will cause profit reductions for realtors, as clients begin to insist that "somebody takes a haircut on their fees" to account for the price increase caused by VAT.
Meanwhile, she stressed the importance of the government providing clarification on areas where the draft bill is unclear or appears to conflict with the draft regulations, for example as regards the sale of commercial land and businesses.
"From my perspective, the July 1 deadline is very aggressive bearing in mind that the government has indicated they intend to bring certain portions of the bill into force before July 1, to allow the registration process to commence in advance of the July 1 deadline. Whether or not the human resources and other technical infrastructure is in place to meet the proposed deadline is something that remains unknown," she said.
"As legal advisers our preference is for clarity, so that we can advise our clients with certainty. We understand that the government intends to circulate draft guidelines, which they have advised will clarify some of the issues that have been raised by industry. We are keen to see those guidelines as soon as possible."
Her comments to Guardian Business come after she made an extensive presentation to the Bahamas Real Estate Association (BREA) on the implications of VAT on the real estate industry last week, in which she indicated the sector will see increased costs as a result of VAT. The effect of VAT on real estate transactions including appraisal fees, commissions, homeowner association fees and legal fees were just some of the areas the attorney focused on during her presentation.
Sands-Feaste said it provided BREA members with an opportunity to get a clear overview of how, if implemented, VAT would impact the real estate sector.
"One of the greatest concerns expressed by persons in attendance at the presentation was the impact of VAT on the cost of real estate transactions, and the cost of doing business in The Bahamas.
"It is certainly and invariably going to increase the cost of doing business in The Bahamas.
"Like other professional service sectors, there is going to be a downward pressure on professional fees as a result of VAT because VAT is going to be charged on certain transactions, and clients will insist that someone take a haircut on their fees to take account of that."
Sands-Feaste has indicated that clients throughout the Bahamas in all industries are anxious to obtain a clearer understanding of the impact of VAT on their particular industry, or business. She will be presenting on VAT in a number of other islands in the upcoming weeks, including Grand Bahama and Eleuthera.
BREA's President Franon Wilson said the presentation by the attorney exceeded their expectations, and allowed its members to get a better understanding of how VAT will impact their business.
"We really wanted to have an understanding of it. To be in an environment where all of the noise in the marketplace was left outside, that means we were able to hear exactly what the addition would entail. Even though the notion of raising taxes is never easy, but at least you will have a really good understanding as to what it is that we're looking at. It is also a sobering reality that things are going to change no matter what tax system is implemented," he told Guardian Business yesterday.
John Rolle, Financial Secretary in the Ministry of Finance recently confirmed that the revised VAT regulations should come out this month, and that the government was making good progress towards the establishment of the CRA.
The government plans to implement VAT on July 1, 2014 at a rate of 15 percent, with the hotel industry at a lower 10 percent rate.
Officials at the Ministry of Finance estimate that VAT can generate approximately $200 million in revenue in the first year alone, which the government has suggested is key to reducing national debt levels.

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