..."a significant concern" over the Government's plan to impose Stamp Duty on the sale of all court-ordered foreclosed properties

'Major concern' over planned 'foreclosure tax'
By NEIL HARTNELL
Tribune Business Editor:


BAHAMIAN home buyers could have to significantly increase their equity down payments if a proposed Stamp Tax amendment goes through, the Clearing Banks Association (CBA) chairman warning that the sector had "a significant concern" over the Government's plan to impose Stamp Duty on the sale of all court-ordered foreclosed properties.

Paul McWeeney, who is also Bank of the Bahamas International's managing director, told Tribune Business that the change - part of the Budget amendments to the Stamp Act - could negatively impact the entire home buying process, and was causing significant concern to the major international banks, particularly in regard to large syndicated loans.

"It's a big issue we are trying to address with the Ministry of Finance," Mr McWeeney confirmed to this newspaper. "Prior to the amendment, or the proposed amendment, any sale of real estate as a court-ordered foreclosure was tax exempt.

"It is a significant element for us to be concerned with and make representations to the Minister of Finance to reconsider that amendment. I understand they are taking a look at it. It is a significant concern, especially for international banks in syndicated loans. The cost of doing it may be prohibitive. The CBA made representations to the Ministry of Finance and they are reviewing it."

Court-ordered foreclosures are ones where a Bahamian court orders that a bank, or any mortgage lender, can take possession of a property and sell it in accordance with the lien/charge it has over it. This power, and procedure, are commonly invoked when a borrower has long defaulted on their repayments, and there is no prospect of the lender recovering its money.

The international banks - Royal Bank of Canada/FINCO, FirstCaribbean International Bank (Bahamas) and Scotiabank (Bahamas) - were those who commonly used the court-ordered foreclosure route, and led large syndicated loans secured on underlying real estate.

Take, for instance, a $20 million loan secured on Bahamian real estate. Previously, a lender or lending syndicate could go through a court-ordered foreclosure, take possession of the property and sell it to a new buyer, recovering their loan without having to pay any Stamp Duty on the purchase.

The Government's proposed amendment, though, would see the banks now having to pay 12 per cent Stamp Duty (6 per cent if split with the buyer) to the Government, which would cost them either $2.4 million or $1.2 million.

What is being viewed as a revenue grab by the Government would, if approved, percolate and have ramifications for the entire Bahamian real estate and home buying market.

If they have to pay Stamp Duty upon selling a foreclosed property, a bank or banks may not recover the full amount on what is already a defaulted loan, forcing them to continue pursuing the defaulted borrower for the balance.

With the banks running the risk of being 'out of pocket' on a defaulted loan as a result of the new tax burden, Mr McWeeney suggested some might seek to mitigate the changed risk profile and increased loss possibilities by demanding higher equity down payments from borrowers, raising requirements from 5 per cent to 10, 15 even 20 per cent.

This will make home ownership costs more prohibitive, and could exclude an even greater number of Bahamians from the mortgage market.

"It almost imposes a penalty or impediment to that [court-ordered foreclosure] process," Mr McWeeney told Tribune Business, warning that it could "negatively affect" the Bahamian banking sector.

He added that not just banks but all mortgage lenders, such as insurance companies and cooperative societies, as well as potential new market entrants, stood to be impacted if the proposal was passed into law.

"It adds to the losses, the cost to take possession, and if you see it, you have to pay 12 per cent of the purchase price. It's a significant cost," Mr McWeeney warned.

"The international banks, with those future syndicated loans, I imagine the banks that design those may have serious concerns about these changes if they go through."

Another banker said of the Government's proposals: "We've got some pain to endure, and the willingness of banks to forgive and do all those things is very slim. It's a risk in the long-run when you need banks to fuel recovery. It's shortsightedness."

June 28, 2010

tribune242

Bahamas Blog International

The Bahamian People and Businesses are Faced with a Limited Scope of Concessions in The Bahamas Government's 2004/2005 National Budget

The Bahamas Government Revenue Limits Concessions For The Bahamian People and Entities

PM Reveals New “Limited” Concessions For Bahamians

 

 

By Hadassah Hall

Nassau, The Bahamas

Journal Staff Writer

05/27/04

 

 

 

Until there is a recovery of recurrent revenues, the Bahamian people are faced with a limited scope of concessions in the 2004/2005 budget presented by Prime Minister Perry Christie on Wednesday.

These new concessions include adding bath soap to the breadbasket items and eliminating customs duties on ink and certain other materials required for computers as part of the ongoing programme to encourage computerization.

Mr. Christie also revealed that the government would remove customs duties and stamp duty on imports of building material for use by private schools so as to enable them to maintain standards. 

Mr. Christie said he is also eliminating customs duties on all musical instruments so as to assist professional musicians and many bands formed by young people.

On the other hand, the government is expected to effect a more “stringent penal regime” to discourage and punish tax evaders in relation to stamp duty collection.

Mr. Christie said the Stamp Act would be extensively amended to reduce the losses resulting from the numerous schemes by tax cheats.   He said it is currently the trend in commercial transactions and in the sale of land.

According to the prime minister, the amendments to be laid before parliament in short order are projected to realize an additional $10 million for the treasury.

Mr. Christie added that the government must continue to modernize the existing revenue system.  He said this is why the major emphasis is on formulating and implementing measures to strengthen revenue administration.

In addition to strengthening the stamp duty collection system, a new Trade Information Management System is being installed in the Customs Department.

Using the latest information technology, Mr. Christie said, the system will enable customs authorities to identify and control areas where there is or potential for a serious risk of revenue leakage.

Mr. Christie emphasized how crucial it is that all taxpayers meet their obligations.

“It is incumbent on every responsible taxpayer to honour his or her tax obligations in a timely manner,” Mr. Christie urged.

Additionally, the prime minister said the government’s strategy to “deliberately avoid” increasing the burden of taxes on Bahamians is due to the country being on the threshold of achieving significant improvements in revenue collection and administration.

The prime minister is confident that the expanding economy will provide stability and growth to key sectors like tourism and financial services, therefore generating additional government revenues without the need to raise taxes.

Mr. Christie admitted that during the past two years since assuming office, the Progressive Liberal Party government observed with “great concern” the difficult revenue position that he said constrained the full implementation of its policies.

He pointed out that in the two previous budgets, despite the weakness of the revenue position, the government deliberately avoided increasing taxation.

“I believed that the proper course was to concentrate on strengthening revenue administration rather than on increasing the burden of taxation on Bahamians,” Mr. Christie said.  “I am continuing with this patient strategy in this budget which contains no new revenue measures impacting directly on the Bahamian people.”

The prime minister said this also includes closing loopholes in the existing system that results in a substantial loss of revenue.

Mr. Christie added that the government at a later date proposes to review a wide range of fees and charges that in some cases have not been changed in decades.

In relation to revenue, Mr. Christie said the government expects a 5 percent increase in recurrent revenue over the 2003/2004 budget level.  He said this represents an increase of $132 million or 14 percent over the 2003/2004 projected out turn that was less than the budget estimates.

He also said that the government is making a small number of adjustments to existing sources of revenue to provide $27.3 million.  Mr. Christie disclosed that among them is the government’s intention to sell the Radisson Hotel for at a net profit of least $10 million.