The Honourable Christopher Sinckler, Minister of Finance and Economic Affairs, delivered the eagerly awaited Financial Statements and Budgetary Proposals of the Government of Barbados on Tuesday, August 13, 2013.
The Minister outlined the approach towards the restructuring and revitalisation of the Barbados economy and specified policy interventions and measures aimed at the restoration of growth and sustainability while growing foreign reserves. He highlighted the four main drivers of growth in the short and medium term as increased public, private, foreign and domestic investment; improved business facilitation; increased productivity; and increased competitiveness.
Using the six months Economic Review 2013 to outline the negative outturn in revenue, driven in large measure by a weakened performance in real activity and the expectations that the global economy is unlikely to rebound, the main features of the budget focused on growth initiatives, fiscal adjustment policies and public sector reform.
The key sectors for growth were seen as international business and financial services, tourism and related services, agriculture, manufacturing, and alternative energy.
The minister saw the need to front load the fiscal adjustment policies aimed at cutting the deficit to a target below 3.0 percent of GDP by 2014/2015, based on initiatives to be carried out from both the expenditure and revenue side.
For public sector reform, the Minister considered structural re-organisation as the starting point for a more flexible, accountable and transparent public sector.
The Minister provided an economic review for the period ending March 31, 2013 which showed a fiscal deficit of $668.5 million representing 7.9% of GDP at market prices, in contrast to $384.2 million representing 4.4% of GDP at market prices for the corresponding period ending March 31, 2012.
The Minister also provided preliminary information from the Accountant General for the period April 1 to June 30, 2013 which showed current revenue of $483.9 million, a decrease of $91.8 million or 15% from the amount recorded for the corresponding period during 2012, and some $162.7 million less than originally budgeted. Current expenditure, exclusive of amortisation of $102.2 million, decreased by $17.7 million or 2.6% from the 2012 figure to $672.3 million.
The measures to be implemented are estimated to earn revenue of $150.9 million over a nineteen month period, while reducing current expenditure by $285 million.
The Government is projecting a deficit of $251.8 million representing 2.8% of GDP at market prices.
Highlights of tax changes announced in the budget are summarised below:
Amendments to International Business and Financial Services Sector – effective January 1, 2014
Multi Year IBC Licences
Effective January 1, 2014, the International Business Unit will issue international business companies with multi-year licences for a maximum of three years. These changes are assumed to be applicable to International Business Companies and Societies with Restricted Liability. The International Corporate and Trust Providers Act will become fully operational with the coming into force of the Regulations.
This measure is to assist with the administrative burden of renewing licences annually. It has been indicated that BIBA is to assist with the measure regarding technical expertise.
Business Facilitation Unit
A unit will be staffed from among existing officers of the Ministry of International, Trade and Small Business Development and will be headed by an Investment Commissioner who will be responsible for assisting with the smooth and efficient implementation of prospective investments, both local and foreign, in Barbados.
Business Facilitation is a critical success factor in the International Business Sector. Therefore the Unit adds accountability to this process. This is likely to increase efficiency and enhance the way business is conducted in Barbados.
Resolution of Tax Law Issues
The Inland Revenue Department will engage on a consultancy basis a local company and tax law expert to handle tax law resolution issues and provide advice to the Department of Inland Revenue so that timely decisions could be handed to businesses in the sector that require them.
This is a much needed initiative which aims to address the various tax issues encountered by taxpayers who require timely responses from the Department of Inland Revenue. More clarity is required regarding the role/responsibilities of the expert , The Commissioner of Inland Revenue and the new Barbados Revenue Authority.
Marketing and Investment Promotion Measure:
It was proposed to increase the marketing and investment promotion budget of Invest Barbados by an additional 7 million dollars to attract foreign direct investment.
This is aimed at encouraging new entrants to the business sector in emerging markets.
Special Entry and Reside Permit
Effective September 1, 2013, a “SERP” will be introduced to replace the Special Entry Permit and will be valid for five years at a time to be available to foreigners who own substantial property in Barbados and their dependents . The value of the property or investment to be used to qualify an applicant for SERP status should be US$2 million or more and the investment must have been purchased with funds sourced outside Barbados and not be subject to any mortgage on it.
In addition, foreigners who have special skills needed in the country and who wish to live in Barbados will also be eligible for SERP.
Persons holding a SERP, will be issued with a Barbados Identification card similar to work permit holders and will be able to obtain Barbados drivers’ licences and otherwise conduct business in Barbados.
The Government of Barbados has expanded the criteria for eligibility to include property and investment. Investment includes real property but also rental real estate, property development projects, manufacturing, tourism, bank deposits, mutual funds or bonds or any financial instrument. In addition, the requirement to qualify for the special entry permit has been lowered from US$5 million to US$2 million.
The SERP should eliminate some of the problems such persons met while travelling to and from Barbados.
Further clarification is required on the life-span of the SERP for such persons with special skills and whether there are any plans for the transfer of knowledge to locals in these specialised areas.
Personal Tax Changes Measure:
The Minister announced that there would be a temporary consolidation tax on gross income of persons earning $50,000 and over, effective September 2013 as follows:
This is expected to be eliminated March 31, 2015. No examples were provided and no explanation was provided or definition given of gross income.
The tax is to be applied on persons earning $50,000 and over. It appears that where a person’s gross income exceeds $50,000, the first $50,000 will be exempt from tax and the remainder will be taxed at a sliding scale as outlined in the table above.
It is worthy to note that the term “gross income” is not defined in the Income Tax Act of Barbados. Thus, for employees some clarity is required regarding what constitutes gross income, eg: salary/remuneration/emoluments.
Since this is a gross based tax, it should enhance tax revenues from self employed persons with reported income who would have otherwise had no taxable income. It is conceivable that gross income could include pensions.
However, it fails to capture persons with unreported income.