Discussion of the Barbados National Budget 2018/2019
Barbados budget includes tax increases, repeal of national social responsibility levy
Professionals from Deloitte in Barbados review the budget's fiscal measures and what it means for business and the economy.
2018 Barbados National Budget Review
Deloitte in Barbados discusses the 2018 national budget following the recent government elections
Barbados’ prime minister delivered her first economic statement and budgetary proposals on 11 June 2018, addressing the country’s economic situation that has included numerous financial downgrades, 10 years of significant fiscal deficits and widely criticized levels of debt. The budget’s proposed economic, tax and social reforms seek to raise BBD 300 million in the fiscal year ended 31 March 2019 and reduce the deficit by BBD 182 million.
The tax measures that are proposed as part of the efforts to generate revenue and revitalize the economy would:
- Increase the corporate and individual income tax rates;
- Impose value added tax (VAT) on online transactions of Barbadian residents;
- Introduce a tax amnesty; and
- Abolish the national social responsibility levy.
The proposed measures are expected to be enacted by 1 July 2018.
The budget would increase tax rates for both corporations and individuals:
- The corporation tax rate would be increased from 25% to 30% as from
1 October 2018. This increase not only would affect domestic companies but also would have an impact on qualifying insurance companies and regular business companies conducting international business. These companies, which normally are taxed at the standard rate and claim a credit of up to 93%, would see their effective tax rate increase from 1.75% to 2.10%.
- As from 1 July 2018, a new income tax band of 40% for taxable income exceeding BBD 75,000 would be introduced for individuals. Currently, gross assessable income up to BBD 25,000 is not subject to tax by virtue of a basic personal allowance, with rates of 16% and 33.5% applying to higher amounts of taxable income.
- National insurance (NIS) rates would be increased from 10.1% to 11.1% for employees and from 11.25% to 12.75% for employers, also as from 1 July 2018.
VAT on online transactions
Online transactions of Barbadian residents for the purchase of goods and services used in or delivered to Barbados would be subject to VAT as from 1 October 2018. The proposal does not provide details on how the VAT would be administered, e.g. whether online retailers would be required to register for VAT, or whether the VAT would be collected by the financial institutions that facilitate the online transactions or the company that delivers the goods. Moreover, it is unclear whether the VAT exemption or zero-rating that applies to certain goods also would apply to online transactions.
The budget includes measures that would affect Barbados’ tourism sector:
- Effective 1 October 2018, an airline travel and tourism development fee would be levied on passengers in addition to the departure tax. The fees would be USD 35 and USD 70 for passengers traveling within CARICOM and outside of CARICOM, respectively.
- As from 1 January 2020, VAT charged for hotel accommodation would be doubled, increasing from 7.5% to 15%, with the delayed effective date giving the sector time to prepare.
- In addition, a 2.5% product levy would be imposed on all direct tourism services and a 10% levy would be imposed for shared accommodation.
A tax amnesty would be introduced that would apply to all taxpayers and all taxes in Barbados. Taxpayers would be required to apply for the amnesty, and applications would need to be made between 1 July and 31 December 2018. The amnesty would:
- Waive all taxes, penalties and interest owed to the Barbados Revenue Authority (BRA) for tax years 1968 to 2000; and
- Waive all interest and penalties on unpaid taxes for tax years 2000 to 2017, where a delinquent taxpayer makes the outstanding tax payment or agrees to a payment plan with the BRA during the amnesty period. However, all interest and penalties would become due where the taxpayer does not comply with the agreed payment plan for six consecutive months or more than nine months in a 24-month period.
Interest and penalties would remain payable on taxes due and owing for the 2018 tax year and subsequent years, although the law would be revised to change the interest from a compound interest calculation to simple interest.
Repeal of NSRL
Implemented on 1 September 2016 to generate funds to address rising social costs in Barbados, the NSRL is a levy (currently 10%) on the customs value of all goods imported into the island (except goods used for manufacturing and agriculture and in the tourism sector) and on all locally produced goods. To encourage lower prices of goods with the aim of improving the Barbados economy, the budget would abolish the NSRL as from 1 July 2018. The Fair Trading Commission would be would be tasked with verifying that the prices charged by producers and retailers are reduced.
Notably, the prime minister acknowledged in her budget speech that Barbados needs to address the recommendations of the OECD under the BEPS project, specifically with respect to the operation of the country’s preferential tax regimes, but she does not anticipate that they will be addressed before
1 October 2018 to give a special task force time to make legislative recommendations (for prior coverage, see World Tax Advisor, 10 November 2017).
The increase in income tax rates and NIS contributions would need to be monitored carefully to ensure that the additional tax burden does not demotivate employees or decrease their productivity.
Although the proposal to impose VAT on online transactions would broaden the tax base, the revenue generation impact of the proposal is difficult to quantify due to the absence of statistical data on domestic and cross-border e-commerce. It also should be noted that the proposed tax, compounded by the existing commission on foreign exchange transactions, could have a dampening effect on imports, which in turn could reduce the demand for foreign exchange.
The repeal of the NSRL is expected to cost the government approximately BBD 145 million. However, it is hoped that the Barbados economy would see a reduction in prices of goods, provided producers and retailers properly reduce the cost of items to reflect the repeal of the NSRL and for the associated VAT.