Tax experts are warning that the devil is in the detail of government’s new online tax, which is to take effect in exactly two weeks. They insist that more clarity be provided on how it will work.
The issue came under the microscope today when the Barbados International Business Association (BIBA) held its Budget 2019 – Tax Implications for Your Business and You seminar at the Hilton Resort.
Tax Partner at KPMG Barbados Louisa Lewis-Ward explained that while Government could simply “increase the Value Added Tax (VAT) rate by two percentage points and save some of the flurry”, the decision was taken instead to put the tax on online transactions in an effort to capture revenue that was not normally captured.
“I think the issue is not of whether we take a rate from 17.5 to 20 per cent, to play with the VAT rate per se, I think the issue is that certain revenue that should have been collected over time has not been collected and therefore it won’t be new to the taxpayer, it will be that the Government is now able to collect what was uncollectable,” explained Lewis-Ward.
Government has amended the VAT Act to allow for the 17.5 per cent to be collected for online transactions. However, there have been several delays in implementing the new measure, which was to initially take effect October 1, 2018.
The start date was then shifted to December 1, then December 15, before the current May 1 date, due to a lack of an adequate mechanism for the tax collection.
Lewis-Ward said there were still some questions to be answered, warning that if not done correctly, “then the system collapses . . . and that makes it that much more difficult”.
“So when I say the devil is in the detail it needs to be planned properly – how the payment process is going to collect that VAT, if you are supposed to receive an invoice or a receipt that you show at the port so it is not double counted. How is that going to be issued? It still applies to things like Netflix, hotel rooms, Amazon, e-bay… have we had dialogue with those companies to see how that invoicing will look? So all of those are the little things,” she explained.
“They are not insurmountable and they will capture revenue that was previously not collected, the question I think is, how much revenue, and perhaps the government has gone through that exercise already,” she said.
During the panel discussion members of the audience raised a number of questions including what systems were in place to ensure items were not double-taxed and why businesses needed to fill out a form to receive the VAT returns.
Lewis-Ward said the clarity could come from both the Ministry of Finance and the Barbados Revenue Authority.
“So it is a full joint effort I think,” said Lewis-Ward.
She said should the measures under the Barbados Economic Recovery and Transformation (BERT) programme fail to rake in the revenues expected, government might have to make adjustments to the basket of goods, which it has already given an indication it would do.
Pointing out that the world was moving to more transactional based taxes rather than corporate taxes, Lewis-Ward said the transactional tax was “perhaps cleaner” once the system can accommodate the changes that need to be made and the collection mechanisms are in place.