A well-known local economist is suggesting that Government’s decision to slash Corporation Tax by 80 to 90 per cent, could help the private sector absorb recently retrenched public workers.
University of the West Indies lecturer and former president of the Barbados Economic Society (BES) Jeremy Stephen, contends that businesses now have the fiscal space to either raise salaries or hire more workers.
“The hope would be that since the private sector has all of this [fiscal] space now, they could pick up the slack from the public sector, given that the Government has sent home all of these persons. You now have an 80 to 90 per cent reduction in tax rate. The unions definitely must now ensure that the private sector cannot argue that they don’t have the fiscal or profitability space to hire people or at least raise salaries,” Stephen told Barbados TODAY this afternoon.
On Tuesday Prime Minister Mia Mottley announced the massive reduction in corporation tax from 25 per cent to a rate between 1 to 5.5 per cent. Mottley also made it clear that she wants businesses to share the benefits with Barbadians.
The Prime Minister outlined that as of January 1, 2019 all corporate entities in Barbados would be taxed on a sliding scale. Businesses with taxable income of up to $1 million will pay 5.5 per cent. Corporations with taxable income up to $20 million will be charged a rate of 3 per cent while those that earn up to $30 million will pay 2.5 per cent. Those with taxable incomes of more than $30 million will pay 1 per cent. Currently Barbados’ corporation tax ranges from five to 25 per cent.
This afternoon Stephen noted that while some pundits may argue that Government was risking a major reduction in its tax revenue, it was in fact a well calculated gamble. He pointed out that Government only earned ten per cent of its tax revenue from the Corporation Tax and this shortfall could be made up and even surpassed should the tax base be increased as a result of the cuts.
“The potential for widening the tax base is there because Barbados now seems attractive with its low tax jurisdiction and the fact that it is in line with the OECD requirements. Those rates that Government came up with will not result in a major loss in tax revenue. Even if it did, the losses will not be substantial enough to dampen tax revenue because Corporate Tax revenue is only 10 per cent of the total taxation. The biggest intake for Government is VAT and personal income tax,” he explained.
The economist also revealed that he also expects a bump in this country’s Gross Domestic Product (GDP) as a result of the new tax regime.
“Now that these firms have been brought onshore it means that GDP automatically should go up. As a matter of fact I could almost guarantee that GDP will rise simply because when you take the activity of these offshore companies and bring them onshore, their activity will be considered as part of our GDP,” he explained.