Government Must Not Kill The Golden Goose – Small Hotel Suffers 50 Percent Hike In Land Tax Valuation

Adrian Loveridge - Hotel Owner

Just when you were beginning to think that it was almost impossible to absorb anymore increased operational costs and stay in business, out of the blue comes yet another surprise. This time for us, its a 50 per cent hike in our Land Tax Valuation.

The number of hotels that have closed over the last 16 years now exceeds thirty and that fact surely cannot have escaped the authorities. Their closure doesn’t seem to indicate improved viability in the sector or that the value of the accommodation property has dramatically increased. So where on earth can there be any logic in re-assessing our small hotel upwards by over 16.6 per cent per annum for the next three years?

Of course, we can object, providing we do it within 30 days of receiving the notification, but a week has been lost already, as the assessment apparently took a week in the post to reach us from Bridgetown, judging by its issuance date. To give that objection any real credibility, we would have to have a professional valuation undertaken, which again takes time and at speculative additional cost. In our case, valuers have indicated at least $7,000 and at a time when we are probably experiencing one of most difficult trading periods for decades.

Recently the BTA Chairman was reported in the media that we, individually in the tourism sector, have to do more ourselves and be less reliant on the ‘national marketing agency’. In reality, that is what many of us have been doing that for years in the absence of any ongoing state agency programme specifically supporting our product and market.

So where do we find this unbudgeted for $7,000 plus, and lest we forget the 17.5 per cent VAT which adds another $1,225?

I doubt if you took a straw poll at this time that our hundred plus small hotels would be averaging an occupancy rate of 25 per cent. Despite this most of their expenses still have to be paid. Electricity, insurance, water, statutory obligations, security and staff among fixed costs. Many larger properties have been driven to widespread discounting, taking some to the brink of insolvency, with a few being saved from possible bankruptcy only by the financial propping-up of associated companies.

Also of concern is the apparent widening of the understanding gap between the public and private sectors. Of course clearly the motivation is different, but no one should loose track that the private sector generates the funds that Government spends.

Destroy the entrepreneurial spirit and drive of our small businesses through inhibitive taxation and the inevitable result will mean much higher unemployment and any hope of accelerating economic recovery.

What also alarms me is that before these revised valuations were sent out any discussion does not seem to have taken place with the various professional bodies, trade associations and our policymakers. This would at least give the impression that Government is genuinely concerned about business sustainability and in some cases, survival.

The recent words uttered by the Secretary General of the Caribbean Hotel and Tourism Association, when describing the current state of this industry may well resonate for years to come, ‘Government must not kill the golden goose, but the goose is already half dead. There is not much more to kill’.

  • One 3-letter acronym. IMF.

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  • George C. Brathwaite

    I really thought the last person I would hear make these statements would be Adrian Loveridge. Surely your influence is at the highest levels when it comes to the tourism product under the Dems? I do not really think that you can disconnect tourism from the artificially designed increases being put by the Minister of Finance; perhaps you are seeing what persons have been saying since the first budget presented by my friend the late Prime Minister Thompson. I said then that you could not tax your way to greener pastures, since then I said you cannot ask the population through increased taxes to bear the brunt of the recession in a small developing country so dependent upon services. Over to you Adrian; if you cannot get the DLP to listen who will? The electorate, time will surely tell.

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  • If the valuation of a particular hotel property increased 50% this strongly suggests that it was previously undervalued for land tax purposes.

    Hotels already get a land tax concession – they only pay tax on 50% of the improved value.

    What is the point of repeatedly stating the number of hotels that have gone out of business over the years? This is not necessarily a bad thing. Were these well run, efficient, well capitalized hotels?

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  • Adrian Loveridge

    Brutus,

    The point was that you cannot continue to impose unbudgeted staggering increases (way above inflation) on an industry that is already on the brink of colapse. A 16.6 % increase each year for three consecutive years is not sustainable for any business, let alone during a recession.

    The ‘well run, efficient, well captitalised’ (who is to judge) issue is something completely different and why should you only apply this to hotels?
    Were Sandy Bay, Sandridge, Ginger Bay, Coconut Creek, Club Rockley. Eastry House, Glitter Bay, Kings Beach Paradise Beach (Cunard) and Silver Sands (who even received TIRF funds) all ‘under capitalised’ or badly run and not efficient?

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  • @Brutus

    Why is it you seem to think small businesses shouldn’t lobby to represent its interest when big business do it all the time?

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  • All I will say is that it is becoming more and more apparent that an ‘Eviction Notice’ is defintiely being prepared for serving. What portends for the party if the Budget is further reversal i.e U-Turns on earlier policy decisions?

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  • Factitious Says —- Someone has to support the CIVIL SERVICE, remember they represent 30% of the countries employment and the supposed Know It All politicians want to keep them employed AT ALL COST.

    As the IMF has stated, Barbados has to get their house in order or they’ll make Greece look like a wealthy nation. Remember Barbados debt to GDP is well in excess of what Greece is now experiencing.

    Barbadian Politicians, as yet, do not understand that increasing TAXES do have a finite limit and when that limit is exceeded then the financial collapse of the country is inevitable.

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  • @Adrian Loveridge,

    What staggering increases on the INDUSTRY are you talking about? Are you suggesting that all hotel properties were reassessed upwards 50% for land tax purposes?

    I never said that the question about ”well run, efficient, well capitalized” only applies to hotels. But hotels already benefit from a great deal of govt assistance and you were the one complaining about the number of hotels going out of business as if this does not happen daily to other types of business.

    Hotels should be able to survive without all of these government concessions (check the Tourism Development Act) or there is something wrong with the business model.

    @David – I don’t see all of the other small businesses begging as much as the hotels do – well, their representatives do the begging.

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  • With all of these hotels that have gone out of business and the rooms that have been lost, does this mean that during winter season visitors to Barbados have a problem finding somewhere to stay?

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  • @Brutus

    There is the view hotels are forex generating entities and therefore command support than other business’ in the distributive/retail sectors.

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  • @David – yes, this is important. But the govt concessions should probably be tied to employment generation, net foreign exchange earnings, efficiency and productivity, etc.

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  • Adrian Loveridge

    Brutus,

    ‘all the Government concessions’. You really have to explain that one to a small hotel operator on Barbados. Apart from the Land Tax ‘concession’ please tell me what ‘all’ the other concessions are that a small hotel operator finds it cost-effective to access?
    Look at the facts, our 160 or so registered hotels barely record and average of 50 per cent annual occupancy. Around 3,500 rooms are EMPTY every single night of the year.
    I am not into begging, just pointing out that Government policies (or lack of them) have consequence.

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  • @Brutus

    Agreed!

    It appears the government maybe making decisions affecting the sector based on macro-performance i.e contributing 15% to GDP.

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  • @Adrian Loveride – I already referred you to the Tourism Development Act. See for example – http://www.barbadostourisminvestment.com/legislation_and_incentives.cfm

    “Provision is made in the Act for investors in tourism projects to benefit from write off of capital expenditure and 150% of interest; there is also exemption from import duty, value added tax and environmental levy in respect of furniture, fixtures and equipment as well as building materials and supplies.” Plus enhanced tax deductions for costs incurred in training of employees and Marketing. Please don’t tell me that it is not cost effective to access these concessions.

    We could probably simplify the system and just exempt hotels from corporation tax as I doubt that very much is collected from them anyway. (However they should have to earn this exemption.)

    Hotels have already received two cash injections from govt since the start of the financial crisis. Don’t forget the reduced rate of VAT on accommodation.

    What about all of the money the BTA spends? What about the soft loans that are available?

    If there are 3,500 empty rooms every night then perhaps we have too many hotels!!

    I have no doubt that there is room for improvement in government policy, but surely there is as much room for improvement by players in the sector itself. We hear a lot about what government can do so when will we start hearing as much about what the sector needs to do?

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  • Adrian Loveridge

    Brutus,

    You seem to be under a lot of misconceptions.
    Many of the ‘concessions’ you mention are ONLY obtainable if you are profitable and paying tax.
    The ‘two cash injections from Government’ (TIRF) went to a very small number of tourism industry partners and then only a percentage of the claims were paid.
    Exactly what part of the BTA, BDS$92 million budget last year went specifically to marketing the 70 or so small hotels that are not members of the Intimate Group?

    By the way, we did not claim or receive any TIRF funds, do not owe any VAT (or ANY other Government dues) and have just paid $70,000 in corporation tax.
    Which soft loans are available and from whom if you are not members of Intimate Hotels?

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  • @Adrian Loveridge,

    If you just paid over $70,000 in corporation tax then surely the increase in land tax (which will reduce your corporation tax) or the valuation fee of $7,000 (which will also reduce your corporation tax) plus fully refundable VAT of $1,225 will not be a problem for you to pay. If it will be a problem then perhaps you SHOULD have applied for the TIRF funds.

    I don’t think I am under any misconceptions. The exemption on input duties is available whether or not you are paying corporation tax, and the corporation tax concessions may be used to reduce your tax to nil. Don’t forget the reduced VAT on accommodation and the discounted land tax.

    The list of TIRF recipients was published on this blog and it did not look like a small number of recipients to me. The second tranche in particular was widely disbursed. If eligible players did not receive any funds then whose fault was that?

    Are you suggesting that small hotels do not benefit in any way from the BTA’s activities unless they are specifically marketed? I find that hard to believe! However you seem to agree that the ones that are members of the Intimate Group do benefit so I think my point still stands – they are already substantial benefits available to hotels in Barbados.

    I am forced to ask this question though, since I don’t know the answer – what is to prevent hotels that are not presently members of the Intimate Group from becoming members and accessing the benefits? Depending on your answer I might be a little more sympathetic to your point.

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  • I find the interaction between Brutus and Adrian most intriguing. A point that Brutus made about there maybe too many Hotels which in part maybe cause for the many empty rooms is a point worth noting. Maybe Adrian can shed more light on that .

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  • @ David
    Can you find out from the Land Tax Department how they arrived at the figure of a 50% increase in valuation for hotels? Brutus is pulling
    information from Adrian like a dentist doing an extraction.

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  • @Chuckles

    Adrian would have to lead on your request.

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  • Adrian Loveridge

    David/Chuckles/Brutus,

    Exactly how Government and why Government arrive at any increase in land tax valuation is a mystery to me as it does seem to reflect the actual market place. I fully accept the scenario that it has to go up but its about the timing and percentage increase.
    Do we have too many hotels or is our marketing not effective enough?
    Or is it down to the product, that in some cases does not meet the customers expectations?
    For many (six) years membership of Intimate Hotels was denied to us for not being sufficiently indigenous. It was the ONLY trade association on Barbados that prohibited Permanent Residents from becoming members, contrary to the law of the land.
    That fact has sadly put us off joining.
    Brutus, don’t forget the soft loans and other concessions which are only available on certains conditions.

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  • @ Adrian
    I bought 10,000 sq ft of land for 60,000 dollars 35 years ago and built a house on it. The site value of that land is now 200,000 dollars i.e almost 10% increase per year. When I called the Land Tax Department 3 years ago, I was told that they don’t have enough officers to visit each person’s property and do an independent valuation. They use the market price of the land which is controlled by real estate agents and add that amount, to the cost of building one-storey, 3-bedroom, 2-bathroom house. That is how they arrive at an improved value of one’s property.

    @ David and/or Adrian
    I am sure that if you call the Land Tax Department, they will tell you
    how an hotel valuation is done. You can also ask the real estate agents
    to give all Barbadians a break with their greedy increases in the price of land. If they are not careful, a time will come when Barbados will become a nation of ‘have’s and have’s-not’ . Then the crime rate will increase and the very tourists whom we depend on to prop up the economy, will stop coming. Adrian, you can return to your land of birth but I don’t know if David is that fortunate since I suspect he was born right here in Barbados. lol

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  • Adrian Loveridge

    Chuckles,

    I obviously haven’t explained my comments very well and apologise.
    It not the increase, its the timing.
    We have always (even when its been really difficult) paid our statuatory obligations and almost always on time. I am happy to accept that our property has increased in value even during the worse economic recession in eighty years and we will pay due taxes, if possible ontime.
    My concern is that we have been asked to spend another $8,000 plus (new valuation) at just about the worst time of the year to be able to object to the increase in land taxes.
    At this time of the year we close the hotel to continue ongoing renovations
    and go into a battle with VAT to get refunds paid in a reasonable time. In the past we have been forced to wait up to 15 months and 5 days for a refund.
    If we are a day late in submitting a VAT return its a fine and a penalty.
    If we cannot (at this time afford) a valuation the increased land tax will cost us over $15,000 over the next three years (at the reduced rate). That money has to come out of something. Reduced marketing, limiting our improvements, less staff or reduced hours working. There are only so many ways you can reduce overheads.
    All those above options will also have a cost to Government and I guarantee you they will be higher that the increased land tax revenue they would have collected over the three years.

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  • @Adrian

    Are you saying that if the Land Tax Department can give you a reprieve
    till the middle of the tourist season, you would be happy to pay the
    increase taxation? If that is the case, a meeting between the Hotel
    Association, the Minister of Tourism and the Minister of Lands would
    sort your problem out. From this distance it would appear as though
    your complaint is different from some Bajan householders’ which suggest that their valuations have been increased by 50 %. I have my
    doubts about their claims unless the real estate people are charging more than 300 % increase in the price of land in their area since the last valuation. If that is the case you or David should tell them to be careful that they don’t price the land out of the reach of the indigenous Bajans as there will be serious consequences down the road

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  • @Chuckles – I suspect that Adrian’s valuation has increased so much because the property was undervalued for land tax purposes in previous years. You see, after being in business for all of these years he must have been expecting a valuation at this time but it obviously never increased enough before to cause him this much angst.

    He doesn’t need the government to allow him to pay the land tax later because he has until March 31 next year to pay (speaking under correction).

    What he is really asking for is the valuer to let him pay the valuation fee later in the year. Of course he would have us believe that having just paid $70,000 in corporation tax, neither he nor the company has enough in savings to pay the $8,000 valuation fee (or maybe a cheaper fee if he would shop around or haggle).

    All of this over another $5,000 per year in land tax which apparently might cause him to reduce marketing or spend less on improvements (note that he gets an enhanced tax deduction for both of these) or lay off staff.

    I am sorry if my tone sounds harsh or dismissive but I am reacting based on my perception that this is a very personal issue being portrayed as an issue for all small hotels, and that it is being blown out of all proportion.

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  • How about us individual tax payers….our valuation on a house went from $200,000+ to $800,000+ I guess as a result of some renovations we made back in 2005!!!!!

    What the hell is going on??????

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