Commercial banks have had to suspend over 300 real estate-related transactions estimated at $211 million due to a “lack of clarity” on the processes involved in the issuance of a tax clearance certificate by the Barbados Revenue Authority (BRA).
And President of the Barbados Bankers’ Association (BBA) Donna Wellington has warned that until there was clarification, the financial institutions would not be in a position to close any real estate-related transactions or disburse monies associated with those deals.
As of March 16, 2017, the amended Barbados Revenue Authority Act, opposed by the Barbados Bar Association, demanded that individuals and corporations be fully paid up to all branches of the state before obtaining a tax clearance certificate.
The grouping of lawyers had warned that the measure would have “constitutional implications” and would “cause more mischief than it cures”.
According to the amended legislation, those wishing to obtain a tax clearance certificate to facilitate a conveyance of land, must pay all tax, interest and penalties accrued under the Land Tax Act, Cap. 78A. People are also required to repay all input taxes in accordance with Section 48(4) of the Value Added Tax Act, Cap. 87 where such tax was previously allowed under Section 46(2) of that Act.
Applicants who may not have the means to settle their arrears in full have the option of paying ten per cent of the taxes, interest and penalties which have accrued under the other taxing Acts, and enter into an agreement with the BRA to make scheduled payments to liquidate the sums owed under those pieces of legislation.
The BBA said there was a “lack of clarity on the processes that are required in order to comply with the Act”.
“As such commercial banks have been experiencing significant delays in disbursement of mortgages and other credit facilities that require security over real estate. These delays are currently impacting an aggregate of approximately 330 transactions with an estimated value of $221 million. The failure to close and disburse these transactions impacts not only the banks’ customers but also restricts the transfers of associated property transfer taxes and stamp duties to the Government of Barbados,” Wellington said.
The “interruption” in business associated with the real estate transactions will directly impact realtors, developers, lawyers, contractors, valuators and all other stakeholders involved in real estate related transactions
The issuance of the tax clearance certificate can take up to six weeks, which commercial banks believe was a significant delay that could further impact negatively on the process of doing business in Barbados for both local and international investors.
Wellington said the BRA had agreed to meet with the bankers on May 30, to “discuss and clarify” the concerns and the requirements for properly closing transactions under the Act.
“The association further advises that until such clarification is obtained, commercial banks will not be in a position to close real estate related transactions and disburse monies associated with same,” she said, adding that the association was eager to find a solution that served the interests of all parties, including the public and clients wishing to execute conveyances, as well as generate income for the BRA.
In a swift reaction to yesterday’s BBA statement, the Opposition Barbados Labour Party (BLP) which had previously described the amendment as “kicking Barbadians while they are down”, appealed to the Freundel Stuart administration to “reverse the madness” and repeal the amendments.
Mottley said the bankers’ grouping’s statement had confirmed what her party had warned all along would have happened, that the amendment “would cause total and complete chaos in the lives of citizens and businesses conducting ordinarily routine transactions” here.
The following is the full text of Ms. Mottley’s statement.
The Barbados Labour Party (BLP) takes no comfort in the announcement by the Barbados Bankers Association about the lack of clarity regarding the recently introduced requirement for Tax Clearance Certificates with respect to all property transactions and all loans involving any form of property interests.
When this amendment was introduced by the Government two months ago, the BLP took the position that this action would be the death knell of business in Barbados. The amendment to the Barbados Revenue Authority (BRA) Act would cause total and complete chaos in the lives of citizens and businesses, conducting ordinarily routine transactions. The Barbados Revenue Authority simply does not have the institutional capacity to undertake the role of issuing this volume of Tax Clearance Certificates in acceptable timelines required for commercial transactions in Barbados.
The Barbados Bankers Association has confirmed that there are hundreds of transactions now being affected at a value of over BDS $211 million. This is just the frontline of the problem as other businesses and transactions are already being affected in their ordinary course of business, even though they are not the ones depending on loans but are dependent on parties being able to close other commercial transactions. These actions therefore stand to affect all households and businesses in Barbados.
This speaks nothing of the revenue the Government is depriving itself of not just in Property Transfer Tax and Stamp Duty but ultimately all revenue emanating from the conduct of legitimate commerce in Barbados.
Additionally, there are the obvious implications for the employment of persons working in the sectors that will be affected by this interruption in business – financial institutions, realtors, lawyers, contractors to name a few.
The BLP warned that there would have been an inevitable revision of the risk management procedures governing the review of loans and also the monitoring of existing loans from year to year. It is clear that the Banks and other financial institutions have now confirmed that these revisions are critical for them before they can continue to do any further business with loans.
We have been aware for over a month now of the legitimate concerns of the banking sector and the related professions. The failure of either the Prime Minister or the Minister of Finance to treat to these concerns with the absolute urgency that they demand has clearly resulted in this suspension by the Banks of the closing of all real estate related transactions and the disbursement of funds related to the same.
It is unacceptable that this matter is to await resolution with a meeting one week away – on no less a day than Budget Day and with BRA who have no power nor capacity to change policy.
It was for this reason that the BLP urged the Government to pause when it introduced these amendments to Parliament, and consult, even if before a Select Committee of Parliament so that we could appreciate the capacity of the BRA and equally the volume of mortgages and credit transactions involving property in any way being dealt with by the financial sector.
We call on the Government for the urgent repeal of this legislation and for us to determine how best we can reduce the arrears both owed to and by Government, given the protracted economic recession of the last eight years.
The one thing that is required to bring back confidence to this economy and to allow people to invest and go about their business is certainty. This amendment has achieved the exact opposite – total gridlock just to do ordinary business. This is certainly NOT how we can turn our economy or the well-being of Barbadians, around for the better.
We appeal to the Prime Minister in the national interest, as the Bankers have already done in the last few weeks. This is not a time for politics or we told you so. It is simply a time for this Government to reverse the madness and repeal the amendments with dispatch. This can be done on Tuesday before the start of the Budget as a simple Bill. Doing so will receive the Opposition’s support.
