The small business sector is worried that the increase in Value Added Tax (VAT) on mobile phone services will hurt small and medium size enterprises.
The VAT on cell phone use jumped from 17.5 per cent to 22 per cent from January 1, in what Minister of Finance Chris Sinckler said was a move to raise $14 million to fund university education.
In an unprecedented move aimed at attracting more customers Digicel’s Regional Chief Executive Officer Paul Osborne announced yesterday the company would absorb the increase.
This, he said, would benefit all prepaid bundles, postpaid smart plans and business customers.
President of the Small Business Association (SBA) welcomed the news as “a worthy development for Digicel customers”, but it left small business operators who were Flow customers in a difficult position.
“So even though it might sound like a good development for the sector [for individuals] who are with Digicel, what happen to the Flow [customers], what happen to them? They are going to have to make a decision – pay the increased tax or switch,” he told Barbados TODAY.
Medford could not say how many of the SBA’s approximately 200 members were customers of either provider.
Further assessing the situation, Medford said it could turn out to be a double-edged sword.
“On one hand it sounds good for customers but on the other hand if the competition don’t match them then it could create a monopoly for them and then they can set the rates to suit themselves so it could be a very dangerous development.
“It could be a very dangerous thing in the market because at the end of the day competition is important and if everybody goes over to Digicel it gives Digicel basically a monopoly in the market. So that in itself, while it sounds good on the surface, it could be a very worrying trend for telecommunications in Barbados because right now everybody uses their cell phones both for data purposes and talking,” he explained.
The SBA president added that while he understood Government’s need to raise revenues to continue to provide social services, he believed asking the small business operators to pay the tax could drive up the cost of doing business, resulting in commodity price rises.
“Because most small business people walk around with their phone as their office. They use the phone – they use data to send information and transact business. So cell phone for a small business is an essential tool,” Medford argued.
“And that is something we have some concerns about because what you are doing is actually pushing up the cost of business. Once the tax is implemented it will have to be passed on. If you are already feeling the pinch it is going to be a challenge.”
Asked if he would seek a review of the tax, at least for the SMEs, Medford simply said he recognized “the difficult position the Government is in”.
He further warned that while “somebody has to be taxed”, Government must be careful that in doing so it did not “squeeze the productive sectors” any further.
“The productive sectors are the
sectors that we want move the economy forward. When we are taxing we have to watch and see where we are applying the tax. The cell phone tax is not on a luxury thing for businesses, especially small businesses. If you got a one or two-man operation they need to have constant contact with their customers through that phone,” Medford said.