|Some considerations on Property Tax
Published Thursday December 9th, 2010
At this point in time, the nation’s
budget is running at a deficit for the third successive year and the
Minister of Finance is tasked with developing new sources of revenue. I
think that is time to return to the question of property tax.
According to a recent statement by the
Minister, if all the taxes due were paid, we would not have any budget
deficit. The ‘tax gap’ is the difference between the total taxes owed
and the actual taxes collected. While the notion of total compliance by
taxpayers would be somewhat unrealistic, the goal of closing the ‘tax
gap‘ is certainly one worth pursuing.
As I wrote on 19th September
in this space –
rental income is also subject to income tax. Not many people who own
rental property actually pay income tax on that rental income – if you
don’t believe me, just ask a few friends or relatives who own rental
property. This seems to me to be an area in which the Finance Minister
can easily collect the data and increase the State’s revenue by staying
within the ‘No New Taxes’ promise and implementing the laws which are
already on the books…”
I am returning to the subject in this
When one considers how wealth accrues in
our society, it is obvious that property forms a significant part of the
nation’s assets. A great portion of the wealth of our successful
citizens flows from rentals, buying blocks of land to sub-divide and
sell-off lots, development or just flipping (buy low, sell high). There
is no doubting that property dealings are a significant wealth-creating
engine in our society.
The property sector is lightly taxed,
with no real capital gains taxes, very little income tax collected on
rentals and very low rates paid for Lands & Buildings Taxes/House
Rates. Only in the case of Stamp Duty is there a somewhat modern system
in place, but even that has been effectively neutralized by the real
The widespread and varied protests
against the PNM’s Property Tax proposals seemed to me to be divided into
two types. Firstly, the general mood of protest against paying any
further monies to a wasteful and corrupt government. Secondly, we were
fed the notion of inequity, with many examples about pensioners and the
less well-off families being heavily promoted. In saying so, it is
striking to me that the position of the serious property dealers
remained concealed in that campaign, which was effective in seeking
after sympathy-support. Almost reminds me of the Clico Policyholders
The first class of objection is
practically dead, given the strong mandate given to the PP in the
General Election. That said, it would be literally playing with fire
for them, having achieved office by campaigning against the PNM
proposals, to bring forward a new property tax in a similar mode.
The second class of objection is
interesting in that it could be instantly invoked to play on our natural
sympathy for the ‘underdog’.
I am proposing that the Minister of
Finance consider targeting rental income for taxation.
So, what are the merits of this proposal?
Firstly, the information could be easily
gathered in the upcoming national census, for which enumerators have
already been trained.
All that is required is three simple
Do you rent your home/business? – Yes or No? If the answer is
no, the other questions are omitted. If the answer is yes, the next two
Who is your landlord?/To whom do you pay rent?
How much rent do you pay?
Given the natural tension between
landlords and tenants, it is difficult to imagine many tenants
concealing or distorting facts for the benefit of their landlords. The
simple fact is that there is plenty of information just waiting to be
Secondly, the legislation is already in
place, so there is no need to get any law changed or go to Parliament
for any discussion. I am proposing purely administrative measures, in
which our existing laws would be properly enforced, something the public
is continually calling out for.
Thirdly, owner-occupiers will be lightly
taxed under the present arrangements, while only the landlords will pay
income tax on their rental income. That will negate the
sympathy-objection, as outlined above.
In terms of actual implementation, it
would be advisable to get a high rate of participation by offering a tax
amnesty to those who filed corrected tax returns within say 3 months.
The waiver of penalties and interest charges on the 6-year tail of
liability would be an attractive incentive to sensible investors.
Just to be clear, the payment of income
tax on rental income does not set-off or reduce a property owners’
liability to pay property tax, as in the case of Land & Buildings Taxes
or House Rates.
There is a substantial pool of untaxed
income, together with an inescapable means of gathering the necessary
The only question is ‘What are we
Property Tax Act 2009 – an update
The closing act of the last PNM regime
was the vastly-unpopular property tax, which was assented-to by our
President on 29th December 2009, after bruising months of
public protest and many, many uninformed statements. The Property Tax
Act 2009 was to be the basis of a complete revision of our country’s
property tax system, insofar as the old Land & Building Taxes and House
Rates were concerned.
The nationwide protest against the
Property Tax proposals was a key factor in coalescing the opposition to
the PNM and seemed to me to have paved the way to the electoral victory
of the People’s Partnership government in May 2010. One of the PP’s
most distinctive and popular manifesto promises was the repeal of that
Property Tax Act.
I was in support of the proposed changes
to the Property Tax system as being long-overdue.
As things stand, no Property Taxes have
been paid for 2010 and the Minister of Finance has given property-owners
a waiver for this year. That waiver amounted to over $140M and it
There have recently been advertisements
seeking details from property owners to update the database for Lands &
Buildings Taxes, so it seems that some further revisions are to take
Afra Raymond is Managing Director of
Raymond & Pierre Limited and President of the Joint Consultative Council
for the Construction Industry (JCC). Comments can be sent to