Tax warning

Government is being warned that a raft of higher taxes on the tourism industry could lead to dampening of demand for the destination, a prominent regional economist warned tonight.

But Marla Dukharan has welcomed Government’s plan to ease its grip on foreign exchange transactions, suggesting that this could result in hoteliers keeping more of their profits here.

Dukharan appeared on a panel of a post-Budget breakfast forum organised by the Chamber of Commerce and Industry and accountants PricewaterhouseCoopers at the Lloyd Erskine Sandiford Centre.

Dukharan said: “I agree that the move to liberalize the foreign exchange regime is very welcomed. I think Barbados has the most restrictive foreign exchange regime in the Caribbean right now . . . so this is a very welcomed reform.”

In her Budget speech on Wednesday, Prime Minister Mia Mottley said effective July 1 this year, all Barbadians will be allowed to open foreign currency-denominated bank accounts for holding foreign currency they have earned locally or abroad.

Dukharan told the forum: “If you look at the impact of tourism we have been seeing growth in tourism numbers but you are not seeing the commensurate rise in revenue and people are wondering is it because of the Airbnb or they are spending less and the length of stay is shorter? But I think a big part of it was that people are keeping more foreign exchange off shore that they earn from tourism. So this new reform with respect to the liberalisation of the foreign exchange will help to alleviate that challenge.”

But Dukharan said she feared that the increase in the Value Added Tax (VAT) rate on the industry from 7.5 per cent to ten per cent effective January 2020, together with a hike in room rate levies, “could potentially have some implications for demand”.

While acknowledging that the more luxurious the property and the destination the lesser the price sensitivity, Dukharan suggested Barbados had “a very diversified product offering”.

The economist said: “I wouldn’t classify Barbados the same as I would, let’s say Anguilla for example.

“So I feel there is a certain bracket that really has price sensitivity and there is likely to be some impact on the amount of demand for some of the properties and vacation stays in Barbados, and that is something I am concerned about.

“The fact that you have now the higher taxes and levies being imposed I feel that there is a risk that we can see some softening in demand for rooms especially at the mid to lower end of the market.”

Also appearing on the panel was Tax Engagement Leader at PwC Gloria Edwardo who predicted that the 75 per cent increase in the room rate levy on accommodation was likely to be a concern to the tourism industry.

She said: “It will certainly cause an overall increase in room rates in a country that is already seen by many as an expensive destination and is likely to make Barbados less competitive to some potential visitors.”

She also said that Government’s decision to reduce the number of zero rated supplies and treat them as exempt supplies meant that input tax would become “irrecoverable and become a cost for the suppliers of exempt goods and services”.

“This is likely to be passed to the ultimate consumers in the form of higher prices,” Edwardo warned.