Government’s decision to make local online shoppers pay Value Added Tax (VAT) on their transactions has caught the island’s private sector by surprise, with officials expressing concern about how the levy will be collected.
Among a $1.2 billion package of austerity measures, Prime Minister and Minister of Finance Mia Mottley announced in Parliament on Monday that residents who shop online would now be levied VAT at a rate of 15 per cent.
However, Chairman of the Barbados Private Sector Association (BPSA) Charles Herbert said while Government has been very accommodating of the private sector in their recent discussions, the only measure “that caught us that were in the room by surprise was the VAT on foreign purchases [online]”.
“That was one that was not well discussed within the team. It caught us by surprise. For me I don’t quite understand how it is going to work,” Herbert told a joint Barbados Chamber of Commerce and Industry (BCCI) and PricewaterhouseCoopers (PwC) post Budget breakfast seminar at the Hilton Barbados Resort on Tuesday, while pointing out that much of the discussion on import duties was centred on “the leakage”.
Herbert pledged to continue to “push” for everyone who did not pay their fair share of taxes to pay, before those “who do pay their fair share, [are made to] pay more”.
He also promised Barbadians that not only would merchants lower their prices with the removal of the dreaded National Social Responsibility Levy, but that they would be made to “demonstrate it to the public”.
“This is a serious challenge. If we do not do this we break our social pact. We need to do it and we need to demonstrate it,” Herbert stressed.
Also commenting on the Budget, the Acting BCCI President Ezra Prescod said that with the removal of the NSRL, which was hiked last July from two to ten per cent on the customs value of both locally produced and imported goods, Government had “essentially broadened the tax base and made tax collectable and transferable to the points that need them”.
However, he too expressed concern about the implementation of the VAT on online shopping.
“The one that concerns me is how do you collect [VAT] from those online purchases. Like Charles, we didn’t go into detail on those in the meetings that we had. So some discussions around how that works need to happen,” he said.
During yesterday’s budgetary presentation, Mottley said “fair sharing of the burden of adjustment” required a review of the current 7.5 per cent VAT rate for the accommodation sector, which is set to increase from 7.5 per cent to 15 per cent effective January 1, 2020.
“We however accept that to introduce this without a sufficient lead period will cause harm to our hotel sector. In our discussions with the Social Partnership [Government, labour and trade unions] we have agreed that any such rate adjustment should be applicable from January 1, 2020. This will provide more than adequate notice for them to plan and adjust their marketing efforts accordingly,” Mottley explained.
However, Chairperson of the Barbados Hotel and Tourism Association (BHTA) Roseanne Myers said the sector was expecting a lower rate than 15 per cent.
Noting that there was a huge discussion on the matter, Myers said the decision to delay the increase in VAT on the sector was to allow for operators with existing contracts to fulfill those business agreements.
“So we were able to make that case. Let us plan for an increase in VAT starting 2020, albeit we did not say 15 per cent. We said a much lower number. So that battle will have to continue, but at least we have a little lead time,” Myers said.