Business representatives from domestic firms and the offshore community are predicting major benefits to companies that could boost the economy, as a result of Government’s unprecedented corporate tax cut.
President of the Barbados Private Sector Association (BPSA) Edward Clarke told Barbados TODAY the decision by Government to lower the corporation tax rate for local businesses to between one and 5.5 per cent was very good news. Currently, domestic firms pay as much as 25 per cent in corporation tax.
In a ministerial statement in Parliament yesterday Prime Minister Mia Mottley announced that effective New Year’s Day, all corporate entities in Barbados, with some exceptions, would be taxed on a sliding scale.
She explained that companies with taxable income up to one million dollars would be taxed at a rate of 5.5 per cent; corporations with taxable income up to $20 million would be charged a rate of 3 per cent; those with taxable income up to $30 million will pay a rate of 2.5 per cent, while those with taxable income of more than $30 million will pay one per cent.
With the major tax ease to local businesses, Mottley said she expected “higher local investment, more enfranchisement of employees and better pay”.
Clarke agreed, stating that companies would be inclined to reinvest the savings from the lower taxes in their operations as well as in new ventures.
“Something like this I would expect to grow an economy; if companies have more money to invest through lower taxation it will certainly make investment a lot more attractive and once investments are attractive people are going to invest funds for future returns. So I think it is a very good thing for the Barbados economy,” said Clarke.
“The economy has to grow and this is one way of helping it to grow. It is very early days and it is being done very quickly . . . but I see this as a positive move for the business sector in Barbados,” said Clarke.
As a result of the move, the BPSA head said he also expected there to be “more dividends to shareholders locally for the public entities”. Additionally, said Clarke, if sending home workers was a consideration as a result of tight fiscal positions, firms were more likely to reconsider.
“The profitable entities that are already taxed at the higher rate, this would certainly be beneficial to them and it may allow them to reconsider any plans they have in that regard, but the growth in the economy and growth in the business sector is what is needed. So we have to ensure that this money that is now available to these businesses are spent wisely,” he said.
The decision to charge both local and international business companies the same tax rates forms a major part of Barbados’ move to become fully compliant with the Organization of Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting (BEPS) initiative.
BEPS is referred to as a tax avoidance strategy that companies use to shift profits to low or no-tax jurisdictions.
“Simply put, it is no longer possible to do what we have being doing for 40 years; that is, making a distinction between the taxation of companies operating internationally and those acting locally without there being severe sanctions that will affect our capacity to grow at this challenging time,” said Mottley.
International business companies were subjected to a tax rate of between 0.25 to 2.5 per cent depending on their level of profits.
Most international business companies that would have previously paid 2.5 per cent in corporation tax, will now fall within the three per cent tax bracket.
President of the Barbados International Business Association (BIBA) Julia Hope told Barbados TODAY the change in tax rates meant that Barbados was meeting the OECD requirements.
“Not only are we meeting our timeline, which is really important, but the change to the tax rates achieve the goal of taking away the ring-fencing which is the goal that is required to the BEPS programme,” said Hope.
Hope said BIBA was already in discussions with some of those larger players and she was confident the new rates would be “a workable solution for those businesses”.
She said the changes went beyond that of taxes, explaining that with the level playing field Barbados was in a better position to also attract more global companies.
“So it is not just about the tax, we have to be offering a package to global companies to say that we are open for business, that we can facilitate your business and a part of that business is a lower rate of tax, but it comes with human capital that is highly educated and available to work,” she explained.
“It gives us certainty of process. The businesses need to know what is happening in their global space and BEPS is affecting over 150 countries. What we are doing by setting out exactly what our future processes look like is giving those businesses certainty – certainty of process and certainty of the playing field – and I think that is what is really important. So we will be using this as a platform to engage on new campaigns to drive global business to Barbados,” she said.