International accounting firm Ernst & Young (EY) is warning that additional taxes on the tourism sector could reduce Barbados’ competitiveness as a tourist destination.
In an analysis of the $1.2 Barbados Economic Recovery and Transformation Plan presented by Prime Minister Mia Mottley in Parliament yesterday as a mini Budget, the reputed multinational professional services firm explained that while the measures would generate additional revenue, they could also have the adverse effect of dampening travel as price sensitive tourists may select cheaper destinations.
In her two-hour presentation outlining the way forward for the economy, Mottley announced plans to introduce a hotel room tax of US$2.50 per night for the B Class properties and apartments, US$5.50 for the A Class and US$10 for luxury resorts.
In addition, effective August 1, 2018 there will be a ten per cent tax on all shared economy accommodation such as Airbnb and Homeaway, and, effective October 1, 2018 an Airline Travel and Tourism Development Tax of US$35 for passengers flying within the Caribbean Community (CARICOM) and US$70 for those flying outside CARICOM will take effect. The Prime Minister also announced that commencing January 1, 2020 Value Added Tax (VAT) on accommodation would increase from 7.5 per cent to 15 per cent.
However, EY contends that when these measures are compounded with plans to increase VAT on online transactions, the cumulative effect would be a hike in accommodation rates
“This will likely lead to a decrease in hotel bookings and may be detrimental to the sector. This problem will be compounded by the proposed VAT charge on all online transactions for the purchase of goods and services by Barbadian residents, which may cause hoteliers to increase their fees,” the report stated.
This notwithstanding, EY said taxes on the shared accommodation sector were long overdue, although it said further clarification was needed on how Government intends to collect from this relatively new player in the tourism sector.
“This is long overdue as previously no taxes were applied to this form of business. This measure is expected to result in an increase in room rates per night.
“It remains to be seen how this levy will be implemented. For example, who will be responsible for collecting? Will financial institutions serve as collecting agents as is done with the foreign exchange fee, or will the service provider be required to collect on Government’s behalf?” the report further questioned.
EY also said the Airline Travel and Tourism Development Tax placed Barbados on the higher end of the spectrum of departure fees in the region. However, it argued that under the measure, Barbadians would be forced to “re-evaluate their spending habits, dampening discretionary spending and forcing Barbadians to prioritize essential expenditure”.
In addition, the report raised concerns over the impact of the Garbage and Sewage Contribution (GSC) fee on the tourism and other commercial sectors.
Citing the sewage connection fees that are currently only paid by residents of Bridgetown and the south coast, the Prime Minister announced that all households would be required to pay the equivalent of $1.50 per day – 75 cents pay day for pensioners living alone – while the fee for commercial entities will be 50 per cent of their water bill.
The Barbados Hotel and Tourism Association (BHTA) today said the water bills for some hotels on the west coast could rise from $40,000 to $60,000 per month.
The EY report stated that while “the need to properly fund and maintain the country’s sanitation and sewage systems is paramount, commercial entities will be forced into bearing a potentially disproportionate share”.