The organization that promotes the development of manufacturing here is predicting that the series of taxes announced on Tuesday by Minister of Finance Chris Sinckler will have dire consequences for the economy.
The Barbados Manufacturers Association (BMA) anticipates that the increased taxes will lead to further contraction of the economy, job losses and business closures.
In his latest effort to drag the economy from the brink, Sinckler announced during the 2017 Financial Statement and Budgetary Proposals that the National Social Responsibility Levy (NSRL) introduced last September would rise from two per cent to ten per cent.
He also announced a two per cent commission on foreign exchange transactions, along with excise duty increases of 24 cents on diesel and 25 cents on gasoline, all aimed at reducing demand for foreign exchange and lower the fiscal deficit, which stood at six per cent as at the end of 2016, higher than the anticipated 5.8 per cent.
BMA President Jason Sambrano told Barbados TODAY the tax increases were significant, explaining that the $218 million which the NSRL is expected to bring in this financial year meant there would be less money circulating to spur economic activity.
“It means people will spend less, there will be less economic activity for businesses. It will obviously increase our cost of production because then people will start to charge us the NSRL in the different lines of what we may procure and it will drive up the cost of production. So it will have a contracting effect with regards to demand for products – both locally produced products and imported products,” Sambrano explained.
“So once those two things converge on each other basically it will put some businesses out of business, [and] especially [put] local manufacturers in a position of having to make some choices with regards to the structure of the business going forward,”
The BMA leader said the proposed two per cent fee on foreign transactions would likely have a devastating impact on manufacturers who import materials using foreign currency.
Virtually all imported material used in manufacturing will rise by two per cent, he said, dealing a further blow to the bottom line.
“So obviously that in itself, while the NSRL affect local sales to the retail trade, the foreign currency commission will then affect our export competitiveness because once we have to pay that, the cost of inputs will go up by two per cents and we will have to either make the decision, do we absorb that to try and remain competitive, which obviously drive up the cost of production, or do we pass it on to the trade and export market, which makes or products even less competitive?” he explained.
Sambrano said he was disappointed that Sinckler did not indicate how long the measures would remain in place, stressing that an indefinite imposition would have long-term implications for the competitiveness of the sector.
As a result, Sambrano said manufacturers were calling for frank and meaningful consultation with Government in an effort to devise a means to better “facilitate the efforts of the manufacturing sector to stimulate exports and improve our foreign exchange earnings”.
The manufacturing executive acknowledged that there was the need for a short-term plan to dampen the demand for foreign exchange, yet he was equally concerned that nothing was put in place to help stimulate growth and improve foreign exchange earnings.
Sambrano welcomed the news of a proposed Value Added Tax factoring programme, however, saying any measure that accelerated refunds to companies was a good thing, given that some have been waiting for a considerable amount of time to get those returns.