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Real Estate Taxes and User Fees

In a recent conversation with a friend, a number of interesting concerns were raised with reference to user fees and real estate taxes on Anguilla. With regard to user fees, utility rates were the primary area of concern-in particular, electricity and water rates. With regard to taxes, the conversation focused on the annual property tax and to a lesser degree on land transfer and accommodation taxes--in particular, their collection, calculation and use. Ultimately, the discussion focused on the fairness of Anguilla's taxes and user fees with reference to Expatriates and Belongers-essentially focusing on the dichotomy between the graduated rates of user fees vs. the category specific rates of taxes. As it was an interesting chat, I thought it would make for an interesting article.

First of all, I believe it is important to keep in mind that Anguilla's basic user fee and tax principles focus on consumption-not wealth. As such, there are no income taxes or capital gains taxes on island as those types of taxes specifically target the accumulation of wealth-however, we do have property taxes, import duties, accommodation taxes, and transfer taxes as those taxes target spending or consumption. Whereas the details of implementation may not be perfect (even in dreamy Anguilla) the concept is sound-and evenly employed across the entire spectrum for both the Expatriate and the Belonger.

With regard to user fees, both the water rates and electricity rates are graduated so that the more one uses, the more one is charged per unit-i.e. per gallon or kilowatt-hour consumed. The idea behind this is two fold-to encourage general conservation on the one hand, and to ensure that heavy users subsidize light users on the other. At this point in time, the goal of conservation is universally recognized as being inherently worthwhile-especially in a small society with limited production capacities. As such, all users (the wealthy as well as the less fortunate) have an incentive to be economical with scarce resources as the cost for those resources rise with use-whereby the costs rise equally for Expatriate and Belonger alike. This graduated price structure is punitive only if one uses an abundance of scarce resources-insofar as resource consumption beyond that required for basic necessities is a unique personal decision, the graduated costs associated with Anguilla's utility rates can be avoided if one economizes. However, if a property owner wishes to have lush gardens that require substantial amounts of water and extensive lighting for dramatic effect, so be it-but that property owner will be (and should be) required to pay a premium for the extra water and electricity used in maintaining their oases.

In corollary, Anguilla's taxes and duties are not graduated but are category specific-a different slant that achieves the same purpose. For example, with reference to duties, the rate to import a car or truck (new or used) is 25%. As such, if one imports an old used vehicle of little value they'll pay minimal duty--on the other hand, however, if one imports a new vehicle that is expensive they'll pay a substantial amount of duty. Once again, these rates are the same for both Expatriate and Belonger, and once again they tax consumption, not wealth-if a rich fellow imports a cheap car he'll avoid high taxes, but if a less fortunate fellow imports an expensive vehicle he'll be saddled with high duty payments. As such, every individual can choose how much tax he pays by deciding on which vehicle he'll purchase and import-category specific tariffs are punitive only if one "consumes" expensive items, just as graduated user fees are punitive only if one "consumes" an abundance of resources.

Property tax is also category specific-with there being only one tax category on Anguilla that (once again) applies equally to both Belonger and Expatriate. The current property tax rate of .075% should in fact be called a building tax, as there is no tax on undeveloped land-on Anguilla annual real estate taxes are levied only on the assessed value of buildings. As such, if one builds a large home and in the process spends more money on construction and consumes more in terms of materials, supplies and labor in the process, they'll pay a higher annual property tax-just as the fellow that imports the more expensive vehicle will pay more in duty. While it is true that the person who builds more has already paid more in import duties than the fellow who builds less, there is no inconsistency in his also having to pay more property tax-the two taxes are separate but are both based on the same philosophy: "those who want more stuff have to pay more money". In fact, the combination of category specific import duties and real estate taxes simply means that the fellow who builds more must realize he'll be paying more in both import taxes and property tax than the fellow who builds less--regardless of the size of either's personal private wealth.

Land transfer taxes and accommodation taxes are, once again, category specific with each type of tax having only one category-transfer taxes being 17.5% and accommodation taxes being 8% (10% shortly). Whereas one might argue that there is a disparity in transfer taxes between the Belonger and the Expatriate based on the fact that the Belonger only pays 5% for a transfer whereas the Expatriate pays that amount plus an additional 12.5% for his Alien Land Holding License, such disparity has nothing to do with wealth or position-a Caribbean national pays the same additional 12.5% as the North American or European investor. The key point here is that if one buys a more expensive property or stays in a more expensive villa or hotel (i.e. consumes more space or luxury) they'll be paying more in transfer taxes and accommodation taxes respectively-regardless of the basic real estate or room cost, the tax is a fixed percentage of that cost.

In review, it appears that the user fee and tax schemes in place on Anguilla are quite fair--especially for a society with such a divergence in incomes as those represented by the average Belonger and the average Expatriate. Arguments for flat or negatively graduated user fees and taxes do not appear to be appropriate for a society without wealth based taxes-and Anguilla is blessed in that it taxes consumption, not wealth accumulation. If one spends substantial money on landscaping or lighting, that does not justify the argument that they should therefore pay lower utility rates for their higher consumption--similarly, the fact that one spends a substantial money on construction materials does not mean they should receive a preferential tariff for their import. If one consumes resources on a luxury level or imports goods that are expensive, one must be willing to pay the graduated utility costs and fixed import percentages applicable to such use and to such goods. Correspondingly, one shouldn't expect Government to discount the accommodation tax rate for renting more expensive properties or reduce the transfer taxes for purchasing more expensive real estate-if one chooses to consume the deluxe room or preferential property, they should be prepared to pay the corresponding taxes based on the fixed percentages in place.

Ultimately, it does not seem appropriate that Government or the utilities should be expected to provide discounts to those that spend and consume more-Anguilla is fortunate in that its fees and taxes allow consumers to regulate their expenses by regulating their consumption without fear that their private personal wealth will be taxed. As long as the rates that are in place for both graduated user fees and fixed tax categories apply equally to all (which they do) fairness is in full force--with consumption based user fees and taxes, paying once does not mean that you don't have to pay twice, nor should it.

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