Prime Minister Freundel Stuart has revealed that Government recently took a massive hit of over $100 million in revenue, in order to keep a number of international business companies (IBCs) from closing their operations here.
Responding to a concern raised about the long delay in paying back Value Added Tax (VAT) refunds and corporation taxes, Stuart added before a gathering of business leaders yesterday that Government’s finances had been “severely challenged”, while highlighting changes made in Canada regarding tax information exchange for trade and Double Taxation Agreements (DTAs).
“Once those changes came into force and tax information exchange agreements and DTAs began to be treated in the same way, we were in danger of losing both our comparative advantage and competitive advantage in the area of international business and financial services,” he explained, during the first business luncheon of the Barbados Chamber of Commerce and Industry (BCCI) for the year at the Lloyd Erskine Sandiford Centre.
“We got some research done because the sector felt threatened by the withdrawal of a number of businesses to lower cost domiciles and we had to make some decisions [including] amendments to the legislation, which almost resulted in a compromise of just over $100 million in revenue in order to keep businesses here and we had to place our faith in the fact that once they stayed, over time we could recoup our revenue losses,” he told the gathering which included Minister of Finance Chris Sinckler and other key Government officials.
In response to the situation, the Prime Minister said he had personally visited Canada as part of an Invest Barbados delegation to talk to the IBCs about the issue.
However, he pointed out that there were other examples of where the country has had to make “some compromises at the level of revenues”, adding that with the slowdown in business and “substantial blows” in the area of corporation tax revenues, Government’s revenues “were challenged and have been challenged.
“I got a study done, the results of which I only received yesterday afternoon, and it looks as though, based on what I was told in the study, the revenue position has now gotten back to what it was in 2008.
“So you pay tax refunds and your VAT refunds and so on with revenue. You have to have the money in order to pay . . . it is an area which facilitation can be very profoundly affected, and I want to assure you that that issue continues to engage my attention and that of the Minister of Finance,” said Stuart, while opting not to disclose details of the study.
However, he went on to give the business community the assurance that Government was getting back to “that point now where we can service” the VAT and corporation tax refunds “with a little more expedition”.
To date, $120 million in tax refunds have been paid out for the 2013 filing period.
Of this figure, $27 million constitutes VAT refunds and the remainder income and corporation tax refunds.
However, in support of promised reform, Stuart said he was currently reviewing a number of tax studies that were done.
“We have to work our way out of having a complex tax system that puts you in a position where you tax people and then you end up giving them most of what you took from them.
“That doesn’t make sense and we were told that we should either decide whether we want to tax or not. You can’t tax and then give back the tax,” said Stuart, while acknowledging that in the case of VAT that was an over simplification on his part.
However, he assured that some significant improvements would be coming over the next few months.