Brace for an increase in taxes in light of Government’s decision to lower the domestic corporation tax rate, level with international business companies, the United Progressive Party (UPP) is warning Barbadians.
In a statement issued by the UPP’s Public Relations Officer Wayne Griffith, the minority political party, which is led by former technocrat and minister for international business, Lynette Eastmond, expressed disappointment at the move.
It was in a ministerial statement in Parliament on Tuesday, that Prime Minister Mia Mottley announced that effective January 1, all corporate firms in Barbados, with some exceptions, would be taxed on a sliding scale of between one and 5.5 per cent, a huge cut from the current 25 per cent.
She said the schedule of taxes would be “revenue neutral”.
Mottley, who outlined that the change was in keeping with promise to meet Organization for Economic Cooperation and Development (OECD) requirements against Base Erosion and Profit Shifting (BEPS), said there would be dialogue to discuss “principles that will underpin the further reform of our tax system”.
The Prime Minister said in developing the proposed schedule of rates, consultation was carried out with tax experts and international and domestic companies.
But the UPP this evening called on Government to share its fiscal impact study, demanding that the population be made aware of how the proposed changes would affect its revenues.
The UPP insisted that converging at just above five per cent, the country would lose revenue from those local firms which paid taxes at an effective rate of 25 per cent.
“The same holds true for insurance companies with proposed tax rates ranging from zero per cent to two per cent. With the international business sector in a state of uncertainty and with the domestic sector paying taxes at a lower rate the question still remains as to how Barbados will make up the shortfall,” the UPP insisted.
“While on the one hand the Government has indicated that the proposal is revenue neutral, on the other hand there is some hint that the taxation mechanism used to plug, what appears to be a gaping hole will be increases in VAT, petrol taxes, user fees and Land Tax. Barbadians should therefore brace themselves for more tax hikes,” the party added.
The UPP said that based on experience any tax hikes may not necessarily result in increased revenue, but those called upon to bear the brunt in this season of austerity “will yet again be small businesses and lower and upper middle income individuals”.
The UPP said Government also faced the possibility of additional revenue loss from the individual income tax side because the corporation tax rate was far lower than the individual tax rate.
“This is what would be referred to as a ‘dolly’ in old cricketing terms for tax planners and too sweet not to ‘try a ting’ even if only for a while. The temptation to incorporate for the purpose of avoiding tax will be great,” the UPP warned.
The fledgling political party also cautioned that with the current set of circumstances Government must also ensure that it did not put its International Monetary Fund (IMF) obligations in peril.
The party said it continued to be concerned about how the BLP administration was going about its work “without the implementation of a comprehensive growth strategy”.
“With the largest Cabinet in the history of Barbados they should be capable of implementing a debt restructuring and a growth strategy at the same time. Relying on borrowings and extracting revenue from the pockets of Barbadians is neither a sensible nor sustainable strategy,” the UPP concluded.
In its criticism of the OECD for what it said was an intention to “dismantle” the tax regimes in Barbados, the UPP said the OECD was doing so “not because of lax regulation or money laundering but because of the fight for the world services industries in the wake of the information technology revolution”.
“Thus, OECD countries feared the loss of services revenue. It was indeed a trade war and one in which they can now claim victory,” the UPP said.
Pointing to Barbados’ membership with the World Trade Organization (WTO), the UPP questioned why Government did not draw on that inter-governmental organization for help.
“The UPP is of the view that Barbados certainly needs as a matter of urgency to review its trade policy and determine whether it intends to have its tax system determined by OECD countries in the interest of OECD countries. No organization of which an OECD country is not a member can dictate the tax policies of the Ministers of Finance of those countries. The UPP is of the view that if Barbados is to carry the burden of being a member of trade bodies such as the WTO then it must also leverage the benefit of that membership,” the UPP recommended.
“The OECD is a supranational organization of which Barbados is not a member. While one may argue that the Government could not do better the UPP is of the view that this war is not over. In such circumstances it is best that Barbados review its international strategy and gird itself to be in a bolder fighting position in the future,” it added.