Unnecessary and unsuitable is how Central Bank of Barbados Governor Dr DeLisle Worrell has described the Value Added Tax (VAT) system for Barbados, while suggesting that the 17.5 per cent levy on goods and services be changed.
And while the Barbados Private Sector Association has welcomed the suggestion, its chairman Alex McDonald told Barbados TODAY any alternative would have to be carefully examined and be much more efficient.
Responding to questions from reporters today during a media conference, Worrell said the current VAT system was no help to Barbadians and he recommended “a simple sales tax” instead.
“I have always said that the Value Added Tax is an inappropriate tax for Barbados. It is an inappropriate tax for any tourism country and it is an inappropriate tax for an economy where you do not use your own raw materials – your raw materials are imported,” said Worrell.
“It has absolutely no advantages for us and it is a complicated tax to operate. It is a tax which if you apply it to services, it creates all kinds of controversies [regarding] what you exempt and what you don’t exempt and so on. It is a mess,” added Worrell.
The VAT was introduced in Barbados back in January 1997 by the former Barbados Labour Party administration led by Owen Arthur. The tax was subsequently increased from 15 per cent to 17.5 per cent at the end of 2010 by the current Democratic Labour Party administration.
Following its review, Minister of Finance Chris Sinckler announced an indefinite extension of the 2.5 per cent increase, which he said raised more than $1 billion over an 18-month period.
However, Worrell has served notice that with the Minister of Finance scheduled to announce International Monetary Fund assistance for a review of the tax system, “I will be sure to share my views on the Value Added Tax”.
He argued that the VAT that was being applied to “many of our services” was “actually a sales tax”, adding that “what we have is not a value added tax in many respects”.
Furthermore, Worrell said retailers and service providers were calculating the tax wrong by including the VAT they paid on electricity and other services before they calculated the price they passed on to consumers.
“So in fact, what we have is not a VAT; it is a sales tax, because a VAT is not supposed to cascade and that is cascading,” he explained.
McDonald said the comments did “bear some thought”, adding that a revamp was perhaps necessary. He said, however, any replacement should be efficient, noting that the quantum of a sales tax would have to be “looked at”.
“I think in this economic environment all options are on the table for dialogue. I don’t think we can immediately throw in or throw out any idea. I think what the Governor is hinting at is more stimulating [of] the economy through less taxation, which is something that we have long advocated for,” said McDonald.
Highlighting a number of developed countries that use a VAT system, McDonald said it would be “interesting to hear and see” what the implications of a different tax system were as they related to the stimulation of commercial activities.
There have been suggestions before that the current tax system was inefficient and flawed.
McDonald said: “I don’t think any of us can argue that it can’t stand a review.”
Also noting that the recent Auditor General’s Report pointed to a lot of leakages in the current tax system, McDonald added: “We would be for any measure that would replace more taxation with more efficient taxation.”