The grandeur of it all was supposed to take your breath away in awe. The apparent size and massiveness was designed to conjure a feeling that one was in the palace of a king, that was somehow ideally suited as a home for an active family.
Every element was structural and every space was functional. The low maintenance, energy efficient, comfortable, spacious, well-ventilated house was designed to survive earthquakes and hurricanes. The 20 foot high massive structural concrete columns were hollow, and also functioned as rainwater storage tanks to comply with the applicable Town Planning requirements. The construction cost was estimated at BD$350,000. (US$175,000)
It was my dream. Everyone is entitled to dream, and to pursue their personal capacity to prepare for any opportunities that may arise, that can enable their dreams to be fulfilled. Four university degrees and 15 years of Engineering experience facilitated that capacity. An ideal area of land on a ridge overlooking the west coast provided the opportunity. The designs were modified to accommodate the land’s unique features, and my dream was on the brink of becoming a reality. Then I received my first land tax bill.
Subsequent discussions with the Land Tax department revealed that once the house was constructed, its market value would be used to determine the land tax. The market value is the price that others might be willing to pay to purchase the property. Given the house’s location, view, size, and apparent luxury features, it was agreed that the property would probably be valued at around BD$5M, resulting in an annual land tax bill of approximately BD$40,000 (US$20,000). Interestingly enough, had I built an unimaginative box type house for the same construction cost of $350,000, it would have only attracted an annual land tax of BD$350.
Estimating the perceived market value of a building is a highly subjective and speculative exercise, in contrast with its actual replacement cost, which can be calculated with more precision. The market value is used to determine land taxes because the Land Valuation Act specifies its use. When the Land Valuation Act was drafted, a building’s market value was similar to its replacement cost, so there was no advantage to using either value. Therefore, once a person could afford to build a house of a certain value, then their land taxes should not have been burdensome.
In recent years, the relatively high demand for residential property appears to have resulted in the market value being significantly higher then the replacement cost, and the unjustness of using the market value to determine land taxes becomes apparent. Last week, the Land Tax department reported that approximately $90M of land tax was outstanding. While I am not numbered among the defaulters, the quantum of arrears may indicate that the taxes are inequitably burdensome.
If a property owner receives some monetary benefit from what others are willing to pay for the property, then the government should not be denied its fair share of the profit. Presently, there are sufficient taxes to ensure that the government receives its share of any benefits that a property owner might receive.
For example, if a property owner sold their property at the market value, then the government would receive a share of the sale price through the property transfer tax. If a property owner rented the property, and the rental cost was based on the market value, then the government would receive a share of the rent through the owners’ income tax. However, if the property owner receives no monetary benefit from the property’s market value, then to be penalized with land taxes that are based on such speculation seems unfair and unjust.
The selection of the market value to determine the land taxes may have the unintended effect of discouraging the construction of creative and low maintenance residential buildings, designed to last many generations. Paradoxically, we spend much effort in maintaining and restoring our creative historical buildings, yet the present generation of capable Barbadians are discouraged from building them.
The Land Tax department has stated their intention to continue basing their assessments on the market value in accordance with the laws of Barbados. I cannot sustain annual land tax payments of $40,000 on an Engineer’s salary. Something had to give. The dream is dead, the drawings have been archived, and the land is up for sale.
Epilogue: Since writing this article, I have built a house at BD$100/sq ft and am awaiting the Land Tax Bill.