Nov 2010 Financial News

Barbadian VAT now region's highest

Nov 26, 2010

Barbados will from next month join Jamaica in having the highest Value Added Tax (VAT) rate in the region, following the Budget announcement that among a series of new tax measures, VAT will increase 2.5 per cent to 17.5 per cent.

Finance Minister Chris Sinckler unveiled the measures in his maiden Budget presentation this week, as he noted that the country's fiscal imbalance necessitated the government taking corrective action.

"Any attempts to correct the fiscal imbalance must of necessity involve revenue enhancement. I therefore propose effective December 1st 2010 to increase the Value Added Tax rate from 15 per cent to 17.5 per cent," he announced.

"This increase in the VAT is intended as a temporary measure for the next 18 months. I further propose to review this at the end of one year with a view to providing relief subject to progress in reducing the fiscal deficit," Sinckler added, at the same time announcing the abolition of the environmental levy with effect from December 1st.

Sinckler said the VAT increase is expected to raise an additional BDS$124 million (US$62 million).

Additionally, excise tax on gasoline will be increased by 50 per cent with effect from December 1st, taking the tax to BDS$0.5358 (US$0.2679) per litre and raising an additional BDS$22.7 million for government in a fiscal year.

The Finance Minister also announced the elimination of allowances. Gone will be tax free allowances for travelling and entertainment granted to employees and allowances for investing in mutual funds and savings with credit unions was useful as a means of stimulating investment using these two vehicles. Those measures will result in total savings of BDS$34 million (US$17 million).

Residents will also have to pay user fees for medicines on the drug formulary if prescriptions are filled at private pharmacies, starting April 1st next year. Currently, drugs on the formulary are distributed free of cost, whether they are obtained at government or private pharmacies.

"Expenditure under the scheme has risen astronomically over the years such that the very viability of the scheme is threatened," Sinckler told Parliament.

"The cost of the provision of free drugs has risen from BDS$9.2 million (US$4.6 million) in the financial year 1992/1993 to BDS$49 million (US$24.5 million) by 2009/2010."

Sinckler said the introduction of the dispensing fees, which will be based on the cost of the drug purchased, will result in revenue of BDS$12 million (US$6 million) annually, but BDS$1 million (US$500,000) will be reinvested to ensure that public pharmacies are equipped with the necessary human and technological resources to meet the increased demand.

Bus fares increase

Among the other revenue earning measures announced by Sinckler was an increase in fees for services provided by the Immigration Department, effective December 1; and raising bus fares from BDS$1.50 (US$0.75) to BDS$2 (US$1), which is expected to rake in BDS$8.4 million (US$4.2 million).

However, the government is providing an ease for private service transportation.

The Finance Minister announced that private service vehicle (PSV) operators have been operating under trying circumstances in the past decades, with bus fares not increasing even as the cost of fuel and spare parts escalates.

"They have had little or no relief from successive administrations. Having met and consulted with sector leaders I have heard their pleas and am now prepared to offer the following relief: The current fees for mini-buses and route taxis are BDS$7,250 (US$3,625) and BDS$4,500 (US$2,250) per annum. I therefore propose to reduce the fees as follows BDS$3,625 (US$1,812) and BDS$2,250 (US$1,125) respectively effective 1st April 2011. The revenue lost to the treasury will be BDS$1.2 million (US$600,000)," he said.

However, Sinckler stressed that these reductions will be performance-based as operators will only be able to access these benefits if they have demonstrated proper standards on the public roads.

"Some of these will include the wearing of uniforms by employees while on the job; a drastic reduction in traffic violations; the elimination of the playing of loud and offensive music and generally good deportment," he noted. "The Association of Public Transport Operators has agreed to work with the Ministry of Public Works and Transport, and the Royal Barbados Police Force to establish a system of appraisal on which operators will be assessed to determine eligibility for the relief."

In other relief for PSV drivers, Sinckler said their license renewal fees will be brought in line with drivers at the state-owned Transport Board. They will pay BDS$80 (US$40), down from the current BDS$230 (US$115).

Other announced measures include cutting the retail license for liquor in half, effective immediately; increasing welfare grants from BDS$35 (US$17.50) per week to BDS$45 (US$27.50) per week; and increasing minimum contributory pension to BDS$163 (US$76.50) per week from BDS$155 (US$77.50) and non-contributory pension from BDS$127 (US$63.50) to BDS$133 (US$66.50) per week.

Government assistance to major sectors

Minister Sinckler also announced the major sectors would be provided with financial assistance.

He noted that Barbados' rebound from the recession is dependent on the performance of the main foreign-exchange earning tourism sector.

The Barbados Tourism Authority (BTA) will therefore embark on a new marketing programme in the United Kingdom, featuring radio and television advertising at a cost of BDS$6 million (US$3 million), on top of the additional BDS$10 million (US$5 million) provided last year.

"The UK remains Barbados' most important source market for tourists. Despite the economic difficulties brought about by the recession in that market, and the significant austerity measures recently introduced by the British Government to reduce its fiscal budget deficit, it is considered important that Barbados make all efforts to maintain a high profile in the market and position itself for the improvement in UK economic fortunes that are expected to emerge in the next 12-24 months," Sinckler noted.

"It is important that the BTA invest in those opportunities in the UK market that guarantee the highest return on investment. Given the increase in UK airlift to Barbados that will come on stream from March 2011, it is strategically wise to frontload expenditure on an advertising campaign and use the attention created to provide an impetus to increase the number of UK arrivals to Barbados."

Assistance will also be provided to the small players in the tourism sector. Sinckler announced a BDS$20 million (US$10 million) Small Hotels Refurbishment Programme be established that would allow approximately 300 rooms in the small hotels group to become aligned with established market standards.

"In addition, I propose to establish a Tourism Loan Guarantee Facility to provide assistance to those hotels which require working capital support. The provision of guarantees presents a viable option for government as it will enable the sector to meet its working capital needs with little damage to government's fiscal position," the Finance Minister said, adding that the facility will be established in January next year.

For the vital international business sector, Sinckler said the Government proposes to allocate additional financial resources to Invest Barbados in the 2011 fiscal year to enable it to mount an aggressive and sustained marketing campaign in the major cities in Canada through a series of seminars and road shows over the next 12 months.

Additionally, Government will explore the possibility of Invest Barbados appointing marketing representative in Mexico to assist in developing opportunities in that market as well as other countries in Latin America.

Small and micro business will also be assisted. Sinckler proposed to allocate BDS$1.5 million (US$750,000) to Fund Access to empower it to facilitate the needs of the small business sector through additional technical assistance for existing and new businesses, training and working capital.

For agriculture, from January 1, registered farmers can apply to the Barbados Water Authority (BWA) to get a flat commercial rate.

As for manufacturing, government has mandated the Barbados Industrial Development Corporation to engage discussions with a foreign financier to procure a US$50 million loan, which government proposes to guarantee to allow the organization to build both internal capacity to assist domestic manufacturers, and other small businesses that call upon their services.

"The loan is expected to assist with plan upgrade, technological advancements as well as some working capital to improve general production capacity. It is anticipated that once the parties agree the loan negotiations should be completed in early April 2011," Sinckler said.

Measures tough but necessary

Sinckler said the outlined measures were designed to "restore financial stability to the public accounts while taking a bold imaginative step towards going for growth".

He said he expected critics to describe some of the measures as too harsh and acknowledged that some of the increased taxes "cause some level of discomfort at all levels".

However, the Finance Minister said, the alternatives are "ten times more painful".

"I take no pleasure in threading this path, but I take comfort in knowing that through these initiatives we will save hundreds of jobs and keep several families together," he said.

"Many people the world over from the USA to the UK, Cameroon to CARICOM, have suffered devastating losses and face grim and uncertain futures. But they have stood up and faced the music. We Barbados must now do the same."


Source:
Jamaica Observer
Friday November 26, 2010

http://www.jamaicaobserver.com/business/Barbadian-VAT-now-region-s-highest_8186195