An across-the-board 10-15 per cent rate of Value Added Tax (VAT) with no exemptions, concessions or zero ratings for any industry or sector is among sweeping tax changes under consideration by Minister of Finance Chris Sinckler as he prepares to make his much-anticipated Budget presentation next month.
The proposal is among the major recommendations contained in a 30-page document produced by a triparite committee, comprising representatives of Government, the private sector and labour, mandated by Prime Minister Freundel Stuart on March 3 to look at ways of reducing the country’s worrying fiscal deficit, with the island’s 2-to-1 peg with the US dollar already showing cracks, and an all-out balance of payments crisis now a possibility given that Government’s debt rose above 110 per cent of gross domestic product at the end of last year while international reserves fell to $682 million, the lowest level since 2009.
Barbados TODAY has obtained a copy of the detailed report, which sets out four areas for immediate action in order for the island to achieve a balanced budget by way of savings in the amount of $750 million.
In addition to lowering the current domestic rate of VAT from 17.5 per cent, which is proposed for implementation over the next nine to 12 months as a means of eliminating revenue leakage and bringing targeted relief to the poor and the vulnerable, the Patrick McCaskie-led committee recommends implementation of a withholding tax on the non-hotel hospitality sector as a means of bringing them into the tax net.
“Today, VAT collected from the non-hotel hospitality sector is not significant,” the committee notes, while recommending a withholding tax with an equal rate to the VAT on hotels (7.5 per cent).
It also suggests that the Ministry of Finance engages Airbnb and other non hotel players to seize the opportunity and put a process in place to collect the needed revenues.
The committee also endorsed recommendations contained in the International Monetary Fund’s 2016 Article 1V Consultation on Barbados which includes completion of the merger of Customs & Excise into the umbrella Barbados Revenue Authority (BRA). In fact, the report specifically recommends that the complete merger, including personnel elements, should take place within three months, as a first step to strengthening the overall tax administration system and yield savings of between $19 million and $40 million over the next two to three years.
On the heels of the recent tax amnesty and in a further crackdown on defaulters, the report also calls for the immediate establishment of a “self funding” revenue court within the next six months. This is expected to accelerate the collection of arrears and to act as an incentive for delinquents to negotiate in good faith and avoid court action.
The report also speaks to the need for greater efficiency in the public sector as a whole and recommends not only major reform of state-owned enterprises, but the elimination of waste throrugh the closure of inactive projects; greater incorporation of technology and the offer of targeted voluntary separation packages.
As a means of controlling wages, the report suggests that as staff leave through attrition, replacements should be limited to one for every five and not one for one as has traditionally been the case.
It also speaks to the need for energy saving given that energy costs are one of Government’s highest forms of recurrent expenditures. The simple recommendations are that lights in Government buildings be turned off at night and that it seeks to expedite implementation of the IDB-financed Sustainable Energy Investment Programme.