Asinine!

That’s how Barbados Economic Society (BES) president Jeremy Stephen has described the International Monetary Fund’s (IMF) recommendation for Government to charge Value Added Tax (VAT) on the sale   of property.

While warning that such a move would bring aspects of the housing market to a halt, Stephen has further cautioned Government that it should not move ahead with any of the IMF’s recommendations for reforming the country’s tax system without a careful examination of the medium to long-term effects.

He was speaking last night during a panel discussion put on by the Institute of Chartered Accountants (ICAB), as part of activities marking Accountants Week.

The discussion, under the theme Reform Of The Barbados Tax System –– What Is The IMF Telling Us And What Should We Do?, examined key aspects of the 68-page report prepared in August by the Washington-based financial institution.

In it, the IMF recommended a comprehensive review of the VAT system, including removal of exemptions, elimination of zero ratings and the avoidance of concessions where possible in order to charge lower tax rates.

The IMF also pointed out that the implementation of VAT on property sales was successful in countries such as New Zealand and Canada.

However, Stephen said those countries had “very highly liquid real estate markets” and therefore could not be compared with Barbados.

Jeremy Stephen

“You have easy access to finance; you can actually pass on the cost you inherited to the next person. The VAT is supposed to affect the end-user. So by considering a structure like that in the medium term is asinine. It could essentially cause the housing market here in the lower class to freeze,” he argued.

He also did not agree with the removal of investment-driven incentives, suggesting instead that the Government needed to address structural issues, including its collection methods, as well as to work more cohesively with the private sector on tax matters.

In his contribution to the debate, Barbados Private Sector Association (BPSA) chairman Alex McDonald said the concessions were “very carefully done over the years” and not on a willy-nilly basis.

He described the IMF’s recommendation for tax reform as “very clinical”, adding that he did not see the proposals as anything other than “a grab for revenue, and tightening an economy”.

Agreeing, though, that the tax system was in need of reform, McDonald said the inefficiencies as outlined in the Auditor General’s Report over the years were what needed to be addressed.

Meanwhile, accountant Gloria Edwardo said she “strongly supported” the IMF’s recommendations on increasing of the VAT threshold from 80,000 per annum. She also supports increasing the excise tax rate.

“I do believe that that there are some allowances and deductions in the Income Tax Act that can be eliminated . . . . There are some concessions in there that, in my experience, have never been used or really been used,” she said, adding that there needed to be some transparency in the process of the discretionary granting of concessions for which the legislation was provided.

In relation to concessions, Stephen said he agreed some of them could be removed, but they should be ones that were “no longer tailored to our growth as a society”.

“I don’t particularly like the concessions that Sandals got. I understand why they were essential because it was very timely-investment-driven, but the long-term repercussions of those concessions actually worry me, especially with skills transfer,” he said, adding that he was “not a big supporter of concessions directly into sugar unless it is into value added”.

He said that although “it is far too late”, there was still a need for “some form of social consultation” on the proposed tax reform.

marlonmadden@barbadostoday.bb

Prime Minister Freundel Stuart today expressed general satisfaction with Barbados’ level of readiness to face any possible threat of Ebola, while telling reporters that the island could only go so far in terms of its preparedness.

In his first public statement at home on the Ebola situation, which comes amid rising fears about the deadly disease, the Prime Minister, who has just returned home from a special Caribbean Community (CARICOM) leaders’ summit on the matter, assured that “we have done most of what we had to do.

Prime Minister Freundel Stuart

“Of course, as I told the meeting yesterday [in Trinidad], you can speak academically as long as you like and as much as you like about your state of preparedness [but] preparedness is not a destination, it is a journey. And you only know how prepared you are when you have to deal with the reality,” added Stuart, who was at the time viewing the body of the late Democratic Labour Party stalwart Tennyson Beckles at the party’s George Street headquarters.

The Prime Minister also reported on discussions at the CARICOM level, which ended in agreement on a 10-point regional plan of action. The full plan, including harmonised travel restrictions and coordinated efforts at ports of entry, an intensive public education campaign and a comprehensive resource mobilisation effort, including a possible Stop Ebola There and Here (SETH) Fund, is to be in place by the end of November.

The leaders also agreed to the creation of a Regional Coordinating Mechanism on Ebola (RCME) with the immediate responsibility to develop a comprehensive regional strategy to address Ebola preparedness in collaboration with PAHO/WHO.

“We discussed putting in place a broad-based coordinating unit at the CARICOM level that would necessarily involve, not only the Caribbean Public Health Agency – CARPHA – and not only the various ministries of health and so on, but would involved Cuba,” he said, while noting that Cuba had more medical personnel in West Africa today than all the other countries put together.

Coming out of the talks, which were also attended by Minister of Health John Boyce and Chief Medical Officer Dr Joy St John, the Prime Minister said it was decided that Cuba would not only provided medical expertise, but would also form part of a proposed Regional Rapid Response Team.

The CARICOM meeting also discussed the issue of financing in response to Ebola.

Stuart disclosed that the Inter-American Development Bank was prepared to commit $7 million in assistance.

He also expressed confidence that other agencies, including the Caribbean Development Bank, would be prepared to “step up to the plate if they have to”, while noting that individual governments would have their own responsibilities in funding the efforts.

However, the response to Ebola was “not just about money”.

“Of course, it is manpower, and that’s where a country like Cuba comes in with vast experience in matters related to health and dealing with health crises and that kind of thing; dealing with emergencies, the whole question of emergency management in matters related to health, Cuba has no equal in this region in that regard.”

The Prime Minister also stated that Barbados would continue discussions and exchanges with its regional partners to ensure that “our populations are safe and that this region’s reputation can be protected”.

emmanueljoseph@barbadostoday.bb

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The Alma Parris Memorial Secondary School is in a state of “total confusion and chaos”.

President of the Barbados Union of Teachers (BUT) Pedro Shepherd gave the grim assessment today after emerging from a two-hour meeting with 11 of the school’s 17 teachers at the union’s Welches, St Michael headquarters.

He said the BUT was preparing to dispatch an urgent letter to the Ministry of Education outlining a number of outstanding issues dating back to 2010. In the meantime, Shepherd said teachers at the St Peter school would continue with “a work-to-rule”, in response to management’s failure to address their longstanding concerns.

President of the Barbados Union of Teachers (BUT) Pedro Shepherd addressing members of the Press after this morning’s meeting.

“We have been fighting this battle with Alma Parris as an institution and the Ministry of Education for approximately four years,” Shepherd said, stressing that “the matters continue to go unresolved”.

“We have held several meetings at the level of the Ministry, at the level of the Permanent Secretary, but most of these matters continue to plague the school today to the point where there is total confusion and chaos at the school,” he said.

Alma Parris was initially set up some 19 years ago as a special school to offer an alternative education to students coming out of the primary system with scores of less than 30 per cent in the Common Entrance Examination.

However, Shepherd said the changeover to a secondary school had contributed to the current problems at the St Peter learning institution which was never intended to train students for certification.

“The intake is small and so there are issues with even creating departments within the school . . . There is also some difficulty in following the secondary school curriculum,” he added.

The BUT boss disclosed that clubs were established so that skills could be taught, but because of the random nature of the selection of students there was chaos.

He further charged that the school-to-work programme, which enabled students to benefit from job attachments at business houses, was discontinued by the current management.

Shepherd told members of the media that members of the teaching staff had also complained they were not allowed to make inputs in the running of the school.

The union boss also reported that a full inspection had been carried out at the school, a report completed and submitted to the Ministry of Education, but no action taken. Furthermore, he said, a curriculum audit was done, but he charged that, once again, the report was “somewhere in the Ministry of Education lying idle”.

In response to concerns raised about the level of violence at the school, Shepherd suggested that one only had to visit Alma Parris on any given day to recognize there was a problem.

Efforts to reach the principal Valdez Francis for comment were unsuccessful.

Chief Education Officer Laurie King, meantime, declined comment when approached by Barbados TODAY this evening at the Ministry of Education.

nevilleclarke@barbadostoday.bb

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The International Monetary Fund (IMF) wants to see the corporate tax system a little less cumbersome, and investment allowances and some tax credit allowances out the door.

Following is the section of the IMF’s report A Tax Reform Road Map For Simplicity And Revenue Buoyancy that deals with business taxation, both domestic and international.

50. The Government of Barbados aims to create an attractive business climate, including through the tax system. Barbados has had considerable success in building up a substantial international “offshore” sector. This sector makes a significant contribution to tax revenues, equivalent to about 50 per cent of company tax revenue (CIT). The domestic sector is more diversified, with the service sector making an important contribution.

51. This chapter considers the various business tax provisions in place in Barbados. For convenience, domestic and international “offshore” companies are considered separately. This chapter first reviews the benchmark treatment of domestic companies and the main incentive schemes available to them with respect to corporate income tax provisions.

Domestic corporate income tax system.

52. Barbados levies a 25 per cent CIT rate on business income of corporations operating domestically. Corporate taxable income is determined by total revenue from sales and receipts minus all production expenses. Losses may be carried forward for nine years. A reduced rate of 15 per cent is levied on manufacturing, construction, residential rental income, approved small businesses, and approved developers under the Special Development Areas Act.

53. Various deductions and credits are allowed, including:

(a) interest payments in full, with an uplift (at 150 per cent) for qualified tourism projects under the Tourism Development Act (TDA) and eligible renewable energy projects;

(b) writing down (annual) allowances at multiple straight line rates, such as a four per cent annual allowance on industrial buildings. This includes also 50 per cent of expenses on intellectual property deductible over a ten-year period;

(c) an initial allowance for plant and machinery of 20 per cent (raised to 40 per cent for industrial buildings and structures);

(d) an investment allowance of 20 per cent for new plant and machinery for basic industry (40 per cent for other eligible manufacturers, including those that export outside CARICOM);

(e) a range of other expenditures on specific items (such as on export market development, the Regional Negotiating Fund), usually with an uplift (at 150 per cent in the cases just given);

(f) a qualified capital expenditure of up to $200 million can be credited in full against taxable income under the TDA over a period of 15 years; and

(g) tax credits apply to exports outside CARICOM, foreign currency earnings, qualified capital expenditures under the TDA, and expenditure incurred in respect of wages under certain conditions.

54. Withholding taxes are levied on dividends, interest, and royalties. Payments to residents are subject to final withholding at 12.5 per cent. Those paid to non-residents are taxed at 15 per cent, unless reduced by treaty. Dividends paid to residents of other CARICOM countries are exempt; tax is withheld on interest and royalties at 15 per cent. Fees and know-how payments are subject to final withholding at between 15 per cent and 25 per cent. Residents are fully taxable on dividends and interest arising abroad, except those received from CARICOM that are exempt. Dividends paid between resident companies, and to residents of other CARICOM countries, are exempt. Final withholding taxes of five per cent on life and property insurance premiums and of three per cent of other general insurance premiums are levied.

55. The statutory CIT rate in Barbados is competitive in the region and globally. Recent years have seen CIT rates tumbling around the world (Figure 1), and Barbados has adjusted accordingly. In the region some countries apply rates selectively for different sectors, but standard rates mostly range from 25 to 35 per cent (Table 7). The standard rate
at 25 per cent is also in line with those applied in OECD and Latin American countries, as well as more generally small island states around the world.

As such –– and considering the very generous capital allowances, credits, and further incentive regimes available in addition –– the reduced rate of 15 per cent applied to selective activities could be gradually phased out aiming at ultimately reaching convergence in the tax treatment of the different domestic sectors. A potential revenue gain of $25 million is estimated by considering the taxable income of the activities subjected to the lower rate for the fiscal year 2011/2012.

56. The depreciation schedule is cumbersome in the fine distinctions it attempts to make, and the annual allowances are not rapid. A system of initial and investment allowances has been introduced to accelerate depreciation, at the cost of further complexity. The combined effect of the writing down and opening allowances could be more neatly and transparently achieved by eliminating the opening allowances and allowing a more accelerated depreciation schedule. For instance, a 20 per cent investment allowance combined with writing down over ten years is roughly equivalent, at an interest rate of eight per cent, to simply writing down over five years. The system could be further simplified by reducing the number of asset categories and switching from the straight line method to that of declining balance: investors would then no longer need to keep track of each individual asset, but could pool those with the same lifetime. Table 8 summarizes the main deductions and credits as they compare to total taxable income and net tax payable.

57. The investment allowance and additional expensing of qualified capital expenditures are excessively generous. In particular, the investment allowance given to companies selling outside CARICOM is especially attractive, since there is no pro-rating to reflect the scale of these activities: that is, the smallest sale outside CARICOM entitles the company to the investment allowance in respect of all its expenditure on imported new plant and machinery. This provision may also be problematic in terms of WTO rules. In addition to the system of annual, initial and investment allowances, capital expenditure for the purpose of providing accommodation of up to $200 million can be deducted in full over a period of 15 years under the TDA, which contributes further to the erosion of the tax base.

58. Elimination of the investment allowance could generate about $5 million. This assumes that the allowance benefits mainly manufacturing activities subjected to the 15 per cent rate. Similarly, elimination of the deduction of qualified capital expenditures under the TDA and the additional 30 per cent tax credit could potentially generate $7 million in additional revenue. These estimates are based on the amount of allowances reported for 2011/2012 in Table 8.

59. There is significant scope for base broadening in streamlining allowed deductions on a range of specific items. Including in these are a number of detailed deductions — usually at 150 per cent of the actual contribution — but also unspecified “other items deductible” in aggregate amounts larger than the total resulting taxable income. Identification, better targeting, and streamlining of these deductions could generate significant revenue gains. A reduction in allowed deductions by 20 per cent could generate about $50 million in additional revenue, based on the amounts reported in Table 8 for 2011/2012, and assuming an effective tax rate of 1.5 per cent.

60. Investors strip profits in Barbados by financing their operations through excessive debt. Deductible interest expenses (even at 150 per cent for qualified investments) reduce taxable profit and the only tax levied is the withholding tax on interest if paid to non-residents, at 15 per cent, unless the tax rate is reduced under some treaties. Interest deductibility should be capped to a maximum, either for related-party debt or total debt. The cap can be defined either in terms of the debt/equity ratio (for example, interest is not deductible if the debt/equity ratio exceeds a threshold of 2/1) or in terms of the interest to income ratio (for example, interest is not deductible if it exceeds 30 per cent of earnings before interest, taxes, depreciation and amortization).

61. A company providing qualified professional services outside CARICOM can receive tax credits dependent on the share of net foreign currency earnings. In 2007, this credit was extended to professional services provided to international companies, which resulted in a substantial increase in forgone revenue. The credit increases with the share of foreign exchange earnings in total profits. Table 9 presents the schedule and the resulting effective tax rate on those activities.

62. While these schemes are evidently intended to encourage foreign exchange inflows, they may cause other and less welcome distortions. A service company earning 19 per cent of its profits domestically, for example, may well find it advantageous to reduce its domestic sales so as to increase the foreign earnings share to 20 per cent, and thereby benefit from the tax credit. By the same token, taxpayers have an incentive to spin off domestic and foreign activities into separate companies. In establishing preferential treatment for income derived from the export of goods and services, these schemes have similarities to a multiple exchange rate regime offering a preferential rate for repatriation of goods and services income. For example, at a tax rate of 25 per cent, a 79 per cent credit on export earnings is equivalent to a 26 per cent overappreciation of the exchange rate by which foreign earnings are converted into domestic currency.

63. The export allowance clearly contravenes the spirit of WTO arrangements, while the foreign currency tax credit seems to go against at least the spirit of the General Agreement On Trade In Services. A strong case can thus be made for removal of these schemes, which in 2011/2012 cost about $100 million in forgone tax revenue from corporations. While the export credit is almost unused (as shown in Table 8), the foreign currency earnings credit represents a substantial share of all company tax revenue.

64. A key concern in assessing any tax system is its impact on incentives to invest. This depends on the both the rates at which tax is charged (on earnings in the corporation and distributions to investors) and on the definition of the corporate tax base (particularly in terms of depreciation allowances). A convenient way of gauging these effects is by calculating the “marginal effective tax rate” (METR) on a hypothetical investment project. This is defined as the proportion by which the pre-tax return on the underlying investment exceeds the post-tax return received by the investor. If a project yields 20 per cent before tax but only 15 per cent after all corporate taxes, for example, the METR is 25 per cent. A METR below the statutory rate signals a tax system that is more encouraging to investment.

65. Baseline METR computations suggest that, even under normal tax rules, the Barbadian tax system is supportive of investment. The baseline in Table 10 reports estimates of the current METR for hypothetical projects in manufacturing, service, and hotel sectors, under the assumption that the investor receives no benefit relative to the “normal” tax rules –– essentially the system of annual and initial allowances. No import duty exemptions or other special tax provisions are considered in the baseline scenario. The analysis also suggests that investment allowances do not contribute much in further reducing METRs, whereas the exemption from withholding on dividends for manufacturing can have a somehow larger impact. Much the same effect could be achieved, however, for the same statutory tax rates by replacing the system of initial and investment allowances with a 20 per cent accelerated depreciation (as shown under the Alternative Scenario).

66. Once all major tax incentives available in Barbados are considered, computed METRs are relatively low in international comparison. Further calculations in Appendix 2 (and discussion in Chapter IV –– Tax Incentives) suggest that import duty exemptions and exemption from withholding taxes on dividends make a significant dent in computed METRs, which are lowered to a range between 12 and 14 per cent. These are low by international standards, compared, for example, to those estimated for OECD or Latin American countries at 19.6 and 26.3 per cent, respectively. In the region, the estimated METR for Jamaica has been estimated at 15.6 per cent.

Other various tax deductions and incentives—in particular the expensing of capital expenditures or tax credits under the TDA — would, however, not contribute much to make the tax system more attractive for investment. As the piecemeal addition of such schemes erodes the integrity of the system, with the presence of some inviting the creation of more, such deductions should be removed.

67. A similar competitive tax environment could be achieved with a simplified tax system for corporations, with better targeted incentives. The mission has been informed that the government plans to expand the list of goods eligible for import duty exemptions to the tourism sector (in addition to manufacturing and other qualified enterprises that are already granted these exemptions). It is likely, therefore, that moving to a simple, 25 per cent corporate tax regime for all onshore enterprises, while eliminating investment allowances and other tax credits, and retaining the withholding on dividends could serve to largely simplify the system, and maintain the corporate tax burden, while preserving a tax system that is supportive of investment.

Recommendations

1. Unify the CIT rate for domestic activities towards the standard rate of 25 per cent.

2. Replace the current system of annual and initial capital allowances with a simpler onecharacterized by accelerated depreciation over five to ten years.

3. Eliminate the investment allowances.

4. Eliminate the expensing of qualified capital expenditures and the 30 per cent tax credit on capital expenditures under the Tourism Development Act.

5. Eliminate the tax credit allowances for exports and foreign currency earnings; alternatively phase them out by capping the credit schedule to up to 50 per cent.

6. Streamline the “other” deductions against Corporation Tax, and remove deductions for contributions to special funds, and so on.

7. Reduce or alternatively cap the deductibility of interest expenses, and remove the uplift of 150 per cent in all legislation.

The IMF is concerned about international business companies’ (IBCs’) exemption from paying duties and VAT on imports and the zero rating under the VAT of certain supplies to those IBCs.

In this section, the IMF examines taxation of international companies.

68. Barbados has built up a substantial offshore sector. There are currently more than 3,500 international companies operating from Barbados, and about 40 international banks. The offshore sector consequently makes a significant contribution to tax revenue. As shown in Table 6, the sector’s contribution to corporate income tax has been above 50 per cent in recent years.

69. Barbados continues to demonstrate a commitment to meeting international standards for taxation in a rapidly changing environment. Barbados was included on the list of 35 tax havens issued by the OECD in June, 2000. Subsequently, Barbados was not included on the OECD List of Uncooperative Tax Havens due to its long-standing information exchange arrangements with other countries, which were found by its treaty partners to operate in an effective manner. OECD also found that the country was willing to enter into tax information exchange arrangements, and has in place established procedures with respect to transparency, which in some aspects had been enhanced. More recently, Barbados has moved to the second phase of the Global Forum review on Transparency And Exchange Of Information For Tax Purposes. Going forward, the tax treatment of international business
will need to respond further to new international arrangements focusing on tax avoidance by multinationals (notably the G20-OECD project on Base Erosion And Profit Shifting) and to changes in the national tax systems of its treaty partners.

70. Licensed international companies and banks are taxed according to a reduced rate schedule.International business companies (IBCs) and exempt international societies with restricted liability (ISRLs) must be resident in Barbados and engaged in manufacturing or service provision for sale outside CARICOM, or in the provision of services to another offshore company. They are taxed according to a degressive rate schedule of 2.5 per cent for profits below $10 million, two per cent (between $10 million and $20 million), 1.5 per cent (between $20 million and $30 million), and 1⁄4 per cent for profits above $30 million. Similarly, licensed international banks carrying on business from Barbados are taxed according to the same reduced rate schedule. Both international companies and banks pay annual licence fees.

71. In addition, other special tax provisions apply, including:

(a) exemption from withholding on dividends, royalties, interest, and fees paid to non-residents; normal rules apply for payments to residents;

(b) exemption from import duty on plant, machinery, equipment, raw materials, and other goods required for their business; IBCs are also exempt from VAT on those items;

(c) specified services provided to IBCs are zero-rated for VAT;

(d) the base for the personal income tax paid by specialist employees not to be found inBarbados is reduced by 35 per cent;

(e) special guarantees of future tax treatment can be requested.

Contribution to revenue.

72. While the contribution of the offshore sector to revenue is significant, its sensitivity to changes in the tax treatment can be substantial. The mission was informed that with Canada signing agreements with other jurisdictions (see below), and extending to them some of the advantages that were previously reserved to Barbados, some IBCs have moved to those countries. This tax base shifting caused an initial revenue loss, and has induced Barbados to strategically cut the one per cent tax rate (previously applied to profits above $30 million) to a 1⁄2 per cent in 2012, which ultimately resulted in a revenue loss of about $60 million. The rate was further cut to the current 1⁄4 per cent in 2013. This suggests that the offshore sector’s tax base is highly sensitive to changes in its tax treatment which would create enormous difficulties in trying to unify the domestic and offshore tax systems. It also indicates the importance of strengthening the domestic tax base, as unilateral changes by other countries can pose a significant risk to revenue.

73. As of December, 2013, Barbados has 33 tax treaties in force and it is currently negotiating some 20 more. These include its multilateral arrangement with ten other members of the Caribbean Community, and countries such as Canada, Czech Republic, Finland, Norway, Panama, Spain, Britain, and the United States. New treaties with Ghana, Portugal, Qatar, San Marino, and Singapore await ratification, and agreements with Belgium, Italy, Malaysia, United Arab Emirates and Vietnam await signature.

74. The treaty with Canada has played an important role in attracting international companies to Barbados. Under the “exempt surplus” provisions of their income tax, Canadian resident corporations escape Canadian tax on distributions out of active business income from foreign affiliates resident in treaty countries. This is available for all offshore activities in Barbados, including IBCs. More recently, however, Canada has signed tax information exchange agreements with other jurisdictions such as Cayman Islands and Bermuda, extending equivalent benefits to them.

75. Of possible concern is the exemption from the payment of duties and VAT on imports and the zero rating under the VAT of certain supplies to IBCs. Being engaged in export, such companies are properly relieved of tariffs on imports, as well as of VAT on their inputs. The issue is how best to arrive at this outcome, the risk being that outright exemption — as opposed, for example, to drawback on duties and refunds of VAT — may undermine the tax base by facilitating the diversion of exempted goods to the domestic sector.

76. The large number and diversity of international companies mean that the monitoring needed to guard against potential leakage is substantial.The mission has not looked into administrative issues in depth, but given the large number of operations and the fact that they are not subject to particular physical control increases this risk. On the customs side, it may be safer to apply drawback procedures to offshore companies; on the VAT side, zero-rating to indirect exporters, though practiced successfully in some developed countries, can jeopardize the VAT chain very significantly where administration is weak. The risks of the present arrangements may be mitigated, however, insofar as customs exemptions are in any event widely available, and the major suppliers of services that are zero-rated for offshore companies may be relatively few in number and responsible in their practices. This is reflected in the relatively little revenue forgone from this concession which in 2012 increased to about $1.2 million.

77. Many of the offshore regimes hold out the possibility of guarantees against future adverse changes in domestic tax treatment. Guarantees may be extended for 15 years in the case of an IBC, and 30 years for a ISRL, while no time limit is specified in the case of international banks. While the mission does not have full information on their current extent, this may be substantial. Such guarantees are not uncommon in developing countries (though not often for such lengthy periods). A key difficulty, however, is that such guarantees are most necessary in countries whose governments have not established a favorable reputation with taxpayers; but then the credibility of the guarantee is itself suspect.  In Barbados, on the other hand, the government does appear to have built up considerable trust amongst foreign investors.

78. There appears to be no clear statement of the circumstances in which guarantees will be given or denied, rendering the system opaque. It is thus important that the issuance of guarantees be subject to scrutiny. In this respect the requirement of parliamentary approval for guarantees issued to offshore banks is a healthy assurance of transparency; but the same oversight does not apply to other guarantees. The obvious counterargument in Barbados is that international companies need to be licensed to operate in the country, and these licences can be revoked, which goes against the spirit of the tax guarantee.

Recommendations.

1. Assess the system of duty and VAT exemptions, and the zero rating of certain services supplied to offshore companies, with a view to better safeguarding against diversion of items to the domestic sector.

2. If guarantees are to be issued, provide clear guidance on the conditions for their issuance, impose an upper limit on their duration, and make information available on their nature and extent.

Plans are in place to create more commercial activity in the Consett Bay area.

Minister of Agriculture, Food, Fisheries and Water Resource Management, Dr David Estwick, gave the assurance during a site visit to the Consett Bay Fish Market, St John.

He met with representatives from his Ministry, as well as officials from the Ministry of Health, the private sector and fisherfolk, to discuss the possibility of driving more commercial activity to the area.

Consett Bay

 “We are looking at Consett Bay, especially the section where the boats are now placed, to see how we can best create a number of kiosks with proper health facilities, lighting, and so on,” he disclosed.

“We are getting input from the fisherfolk and the guys in the area, and people who are accustomed to hanging out and plying their trade here  . . . We have the support of the private sector who are going to help us in the donation of supplies and wood to make sure that we can have the various kiosks and so on.”

The Agriculture Minister also stated that officials were examining the possibility of reopening the road connecting Sealy Hall and Consett Bay, which had been closed for a number of years, to provide easier access into the fishing village.

Police are carrying out investigations into an early morning shooting at Golden Rock, the Pine, St Michael in which a 17-year-old resident was shot in his abdomen.

Acting police public relations officers Station Sergeant Roland Cobbler said the incident occurred around 2 a.m.

He said the young man was taken to the Queen Elizabeth Hospital by ambulance where he underwent emergency surgery.

Cobbler told Barbados TODAY that lawmen are concerned about the increase use of firearms to resolve conflict.

And he has called on the public to report anyone who is in possession of illegal guns.

The country’s latest shooting incident, in which a 17-year-old sustained a gunshot wound to his abdomen, has prompted lawmen to call for Barbadians to report anyone with illegal guns.

Acting police public relations officers Station Sergeant Roland Cobbler made the appeal as he confirmed the early morning attack at Golden Rock, the Pine, St Michael.

He said it was around 2 a.m. when the teenager was shot. The young man, whose name was not released, was taken to the Queen Elizabeth Hospital by ambulance where he underwent emergency surgery.

Cobbler told Barbados TODAY that lawmen are concerned about the increased use of firearms to resolve conflict.

Police are continuing investigations into the shooting.

A resolution tabled by the Christ Church East branch at last month’s 76th Annual Conference of the Barbados Labour Party (BLP), which seeks to place same-sex couples on the same level as heterosexual couples in any new domestic violence legislation, has aroused the ire of some members of the Mia Mottley-led party.

Barbados TODAY has learnt that the matter was also the source of heated debate during last Monday night’s  parliamentary group meeting at BLP headquarters on  Roebuck Street.

At that meeting, several Opposition parliamentarians, including St George South MP Dwight Sutherland; St Michael East MP Trevor Prescod; St Michael North MP Ronald Toppin and St James Central MP Kerrie Symmonds came out strongly against the resolution that supports “gender-neutral” legislation, which  specifically defines “partner” as “any person who is in a visiting relationship with the respondent” and “spouse” as “a party to a relationship where the parties are living with each other in the same household as though they were husband and wife”.

Well-placed sources say when the matter came up for discussion at the October 24-26 party conference, Mottley, who was chairperson of the meeting, had sought to distance herself from the resolution, indicating that such proposals needed to be properly vetted before they could be submitted for adoption.

The move has also not gone down well with members of the Christ Church East branch in whose name the resolution was brought by the constituency’s caretaker Wilfred Abrahams.

In a letter dated November 4, 2014 to general secretary of the BLP Dr Jerome Walcott, the branch’s executive body was adamant that the resolution was never discussed at the branch level.

“We wish to emphatically state that the branch has had no knowledge of the resolution whatsover, prior to its presentation to the conference; has absolutely not participated in any discussion, let alone any drafting of such resolution; and was totally unaware of its contents.

“On behalf of the Christ Church East branch of the BLP, we the duly elected officers of this constituency branch, having discussed these circumstances at a meeting held on Monday, November 3, 2014, formally ask that the National Executive Council of the party at its next held meeting takes note and duly records the foregoing, which deeply offends the branch procedurally as well as, by implication, suggests the branch’s acquiescence and/or support of any formal legislative recognition of non-heterosexual relationships at this time, and where there has been no engagement nor discussion on the matter. We further ask that this objection be formally registered as correspondence at the staging of the next annual conference of the party,” the branch executive added.

The correspondence was copied to Mottley, in her capacity as chairperson of the BLP, and Kwame Bradshaw, the president of the party’s Christ Church East branch.

However, Abrahams is of the view that the proposal is “not something to be feared, but to be embraced”.

During the recent annual conference, he had described the proposed domestic violence bill as “a socially revolutionary piece of legislation” that would “widen the ambit of who actually is a victim”.

Abrahams, who also defended the resolution at Monday’s parliamentary group meeting, insists that while it is going to be controversial, “if you are in a non-hetrosexual relationship, the fact is if you are being abused or being victimized, then that I don’t approve of your lifestyle does not mean you are not entitled to the full support and protection of the court”.

“How it is drafted, it is drafted to catch anybody. If we open our minds and consider what constitutes a domestic situation, all those people are caught,” he told BLP delegates.

When contacted today, Abrahams told Barbados TODAY that the proposed legislation had only ever been about the protection of victims of violence.

“It is entirely unfortunate that the public is now being misled as to the content and extent of the draft legislation,” he said.

“There is no mention in the draft legislation of same-sex unions or same-sex relationships. In fact, the draft follows the exact approach as the Government’s working draft in terms of being gender neutral, and while affording significantly more remedies than the Government’s, it does not include or exclude anyone that the Government’s does not.”

Responding to reports of a division in the party over the issue, Abrahams said: “I was not a part of any heated parliamentary group meeting on the topic and, in any event, the deliberations in parliamentary group are confidential in much the same way as the Barbados TODAY board meetings.

“As far as I am aware, the only rumblings in Christ Church East are by the people who want Denis Lowe to go because he has failed them as a representative and a minister.”

nevilleclarke@barbadostoday.bb

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News of Cable & Wireless’ buyout of rival Columbus International made waves in the telecoms sector today, with customers expressing concern about the “monopoly” and one analyst calling on the Barbados Government and others in the region to block the deal until it has “secured guarantees open to public scrutiny and monitoring”.

As customers of both telecommunications companies discussed the potential impact of the takeover, Professor Avinash Persaud warned the deal was a “major threat” to competition in the region.

Professor Avinash Persaud

“The deal will be a major blow to attempts to improve quality and access to telecommunication connectivity, a critical factor in the region’s economic future,” cautioned the senior fellow at the United States-based Peterson Institute for International Economics.

“Despite the region’s need for economic salvation and its importance to the region’s economic future, broadband in the region is more expensive, less broad and less reliable than in markets the region needs to be competitive with. This deal will widen the gap with those competitors, not close it.”

Persaud said if such a deal had been “merely proposed” in the US or Europe, it would attract the attention of the competition authorities “who would have placed a stay on the deal until they were sure it would not compromise quality and price, or until they had received guarantees on both issues from the company”.

Director General of the Barbados Consumer Research Association Malcolm Gibbs-Taitt agreed that there was cause for concern.

“We need competition in all markets, especially in the communications market, because we are well aware that without competition this one-man show that Cable & Wireless has been accustomed to will not serve the consumers of Barbados well at all,” he told Barbados TODAY.

“There is going to be a sour taste in the mouth because, basically, the possibility with this is those who have signed up with FLOW may soon find that they are paying the same amount as those who are already with Cable & Wireless. There is a serious concern on this matter and I really feel that the Minister of Consumer Affairs Donville Inniss needs to explain to society what the Fair Trading Commission has done if the Fair Trading Commission is not minded to explain to Barbadians what has happened here.”

Consumers have also been expressing their views.

Commenting on Barbados TODAY’s Facebook Page, the overwhelming view was that the buyout would create an unwanted monopoly.

“They shouldn’t be allowed to do this! That’s a monopoly,” one person said.

“Very bad news! Killing competition. This deal should not be allowed by the Barbados Government, it’s bad for citizens and the free market,” wrote another.

“Seriously, is that even legal?” Theresa Stuart questioned.

“I thought the Government is not supposed to let things like this happen . . . Where is the FTC in all of this?”

Some were less concerned about the move.

“If you can’t beat them, buy them,” Jason Greenidge wrote.

“This is the best survival business tactic of all times. Buy the main competition.”

“Business as usual. Don’t be so alarmed,” another wrote.

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The battle for the number one spot in Barbados’ lucrative telecommunications market is back on.

Former monopoly provider Cable & Wireless Communications (CWC) today served notice that it will not “roll over” and play dead while its main competitor Digicel continues its expansion.

The warning came from CWC’s Chief Executive Officer Phil Bentley in an exclusive interview with Barbados TODAY from his London office, following today’s announcement that the company, which operates here as LIME, had reached a conditional agreement to acquire cable TV and Internet provider Columbus International Inc., in a deal worth about US$3.025 billion.

Asked if the acquisition was likely to impact negatively on rates, Bentley said the company would be making sure its services were efficient and that should allow for savings to customers.

CWC’s Chief Executive Officer Phil Bentley

“It puts Cable & Wireless on the map. It says that Cable & Wireless is here to invest, to stand its ground, and stand toe to toe with Digicel. [We are] not going to roll over and we are here to [stay]. The Caribbean is our home now . . . This puts Cable & Wireless at the heart of the Caribbean and that is where we want to be. This is our home. We have been in these markets for over 100 years,” he said.

Telecoms rival Digicel was among the early objectors, saying the proposed transaction raised “a considerable” number of issues, both in terms of regulation and competition.

“The issues that will need to be addressed include such matters as fairness in spectrum allocations, local loop unbundling, price bundling generally, as well as a myriad of other likely issues which will only become apparent once Digicel and other agencies and bodies have been fully appraised of the details of the proposed transaction and likely resultant impact on the telecoms market in the region,” warned Digicel, which entered the Barbados market in 2004 and has been a fierce competitor to LIME ever since then.

However, Bentley pointed out that the acquisition process had started “quite a lot of months” ago and the company had spent “quite a lot of time” thinking about it.

“It is interesting [that] in that time Digicel, our main competitor for mobile, they have been buying TV, businesses, they have been rolling out fibre, they have bought Sports Max from [International Media Content Ltd] . So we can’t just stand by and let them take over the industry,” he told Barbados TODAY.

“This is our strategic bazooka to take them on. This is very much engaging in very active competition and when that happens the winners are the customers,” he said while describing Digicel’s initial reaction as “a bit like sour grapes because they didn’t get the business”.

With the acquisition, CWC takes over Columbus International’s Caribbean and Central American operations.

Columbus, which is Barbados’ newest telecoms entrant, came to the island just over a year ago, ironically after a takeover of TeleBarbados and Karib Cable, and has been busy expanding its fibre footfront, as well as establishing itself as a credible third player in the highly competitive sector.

However, the company which operates here as Flow, today welcomed the takeover deal with CWC.

Flow said in a statement that the move should result in greater efficiency and improvements in all markets serviced by the two companies.

And while the deal is likely to result in structural changes, Flow said no decision had yet been made on what those changes would be and as such the companies would continue to operate “business as usual”.

Flow, which had announced back in April that it would be investing $140 million into the domestic market, including construction of a new headquarters at Warrens, St Michael, also said it remained committed to retaining, developing and attracting “the top local and regional talent in the ICT sector”.

In the meantime, Cable & Wireless is confident that the move should result in “some job creation”.

Bentley noted that Flow, which currently employs over 200 full-time staff here, prided itself in training its own people, adding, “we might find that we can bring jobs back into Cable & Wireless where we have been exporting”.

The CWC head honcho said the merger, gave the company a stronger footing on which to compete with Digicel, adding that it should also lead to more investment for Barbados.

He also described the Barbados Government as pro investment, saying the acquistion was good for the local economy.

“That is why we hope this transaction is welcomed because it would be more investment and more jobs.”

“We are here to fight for our customers and give them better service, better products and we know we are ready to take on Digicel,” he said.

He however stressed it was too early to say if there would be any immediate major changes, noting that both LIME and Flow had their strengths.

When contacted Minister with responsibility for the sector Donville Inniss said he preferred not to comment on the developments at this time.

marlonmadden@barbadostoday.bb

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An out-of-court settlement may be in sight in the case in which Opposition Barbados Labour Party (BLP) St Andrew MP George Payne is claiming damages against his St James North colleague Edmund Hinkson.

St James North MP Edmund Hinkson

St Andrew MP George Payne

The legal battle arose out of alleged slanderous statements made by Hinkson during a parliamentary group meeting at BLP headquarters on February 25, 2013.

Well-placed sources have told Barbados TODAY that Payne’s attorneys, Smith & Smith, are scheduled to meet with Hinkson’s lawyer, Sir Richard Cheltenham QC, to bring a resolution to the issue “in short order”.

Earlier this week, Barbados TODAY reported that attorney-at law Dale Marshall QC, who is Payne’s legal partner in addition to being a BLP MP, had lodged a statement in the Supreme Court on August 8, 2014 in support of Payne.

This newspaper has also learnt that at least two other parliamentarians who were present at the February 25 meeting have thrown their support behind Payne in his quest for justice.      

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The tax incentives offered by the Government of Barbados have been a source of concern for the International Monetary Fund (IMF). In its report A Tax Reform Road Map For Simplicity And Revenue Buoyancy, the Washington-based institution has recommended that Government minimize some concessions and consider introducing a cap on annual costs for discretionary duty concessions.

79. The extensive use of tax incentives in the Caribbean region is well documented. Tax incentives have become increasingly pervasive, spreading over multiple taxes and resulting in substantial tax expenditures with uncertain impact on FDI and growth. But incentives regimes and policies have also diverged over the years leading to important cross-country differences in concessions offered, as well as in revenue forgone. Tax concessions may take a number of forms: exclusions, exemptions, allowances, deductions, credits, preferential tax rates, or tax deferrals.

80. The present incentives regimes are generally considered the outcome of intensive tax competition in the region. This “race to the bottom” with tax incentives targeting mobile tax bases, including FDIs, has also led to serious erosion of tax bases. In contrast, economic activities not benefiting from concessions are frequently subject to high nominal tax rates . . . .

81. Tax concessions for investment in several economic sectors are currently provided for in specific legislation. Typically, those legislations include income tax concessions, as well as import duty exemptions. Legislation guiding specific tax concessions in Barbados include the Tourism Development Act (TDA), Small Business Development Act (SBDA), Special Development Areas Act (SDAA), Shipping Incentives Act (SIA), and Fiscal Incentives Act (FIA).

The respective laws prohibit double dipping of tax concessions. The TDA aims at providing a competitive set of tax advantages for developing the tourism sector; the SBDA aims at supporting small locally owned corporations with less than $1 million in paid up capital, less than $2 million in sales, and fewer than 25 employees. The SDAA supports investments in a range of activities, including tourism, construction, and agriculture, but its scope is limited geographically. The SIA grants tax incentives to shipping companies, including commercial shipping, boating in the tourism industry, and carriage of passengers. Finally, the FIA is intended to support resident and foreign manufacturing companies. The mission has been informed that due to the apparent contravention of some of its provisions with WTO rules, the FIA would be phased out by the end of 2015.

82. Tax incentives are also provided in tax legislation, in particular corporate income tax and value added tax acts. As discussed in previous chapters, the Income Tax Act includes several provisions to encourage investment, like reduced rates for certain activities, initial and investment allowances, carrying forward of net operating losses, generous deductions, and tax credits. Also under the VAT Act, a reduced rate applies to accommodation, and a number of goods and services are either exempt or zero-rated. Table 11 summarizes the main available tax concessions under different pieces of legislation.

83. In addition, substantial discretionary powers to grant tax concessions are given under the Duties, Taxes And Other Payments (Exemptions) Act. This act, generally known as the Cap. 67B, entitles the Minister of Finance to grant by order an exemption to remit or refund any payment made by any person, business or undertaking in respect of the payment of any duty, tax or other money, including on the payment of tax arrears, interest and penalties that may apply.

84. Barbados has promulgated several stand-alone acts that provide similar tax concessions. As shown in Table 11, tax incentive legislation typically extends the scope of concessions already available under the Income Tax Act, and grant import duty exemptions on building materials, machinery, and other inputs. These several acts are, however, administered by different line ministries; that is, Tourism, Industry and Commerce, Finance. Similarly, the Minister of Finance has often used the discretionary power granted under Cap. 67B to grant waivers for import duties, VAT, and excise taxes. More recently, this discretionary power has been used to extend very generous concessions to tourism projects that go beyond the scope of the Tourism Development Act.

There appears to be scope for rationalization of the individual tax concession laws by consolidating these into one overarching concession law with individual sector chapters or schedules. It should contain, in lieu of discretionary powers, published objective criteria which would indicate whether an investor would qualify for a set of incentives.

85. By consolidating the individual incentive legislation, the authorities would have an opportunity to review the present system of tax expenditures.The relevance of some of the incentives could be reviewed. It would enable a comparison of forgone revenues against the uncertain benefits of additional investments stemming from these long-term concessions. It appears for instance, that the FIA has become obsolete since the authorities granted import duty exemptions to the entire manufacturing sector by order under Cap. 67B. It appears too that many of the income tax concessions are not effective in making investment in Barbados more attractive.

86. In general, the preparation of a periodic tax expenditure budget that takes stock of the various tax concessions and their cost in terms of revenue forgone should be considered. Tax expenditures, being Government spending through the tax system, lower tax revenues for certain categories of taxpayers (sectors, firms, or individuals) thereby deviating from the benchmark tax system. To determine whether a tax measure generates tax expenditures, it is necessary to establish the benchmark or “normal” tax structure from which concessions represent a departure and that is the most difficult part of the exercise. In essence, it constitutes preferential treatment to stimulate economic activities or attain certain social objectives. These indirect income support programmes should, therefore, be incorporated to the annual Budget process when presented to Parliament. Hence, its label of a tax expenditure Budget.

87. Some tax incentives are more cost-effective than others, which should inform future concession design in Barbados. Appropriately designed capital allowances as part of an income tax system, such as accelerated tax depreciation provisions, are critical for fostering a favourable investment climate, especially since these provide a cost-effective way to grant early cash flow benefits for major investments. Generally, depreciation can be more easily afforded as it merely defers Government’s receipts. As an aside, an income tax regime provides start-up and loss-making firms with a tax deferral benefit through provisions that allow for the carrying forward of tax losses. These tax provisions are already in place but could be further simplified to make them work more efficiently.

88. Until recently, Barbados has generally refrained from the practice of providing income tax holidays.With the exception of the Fiscal Incentives Act, which the mission understands has been almost unused for many years now and which the Government intends to phase out by the end of 2015. Recently, however, there has been new pressure to provide generous tax holidays. A 2013 amendment to the Income Tax Act grants an income tax holiday for a period of ten years to a developer, manufacturer or installer of renewable energy systems and energy efficient products. Also, the Minister of Finance, using discretionary powers under Cap. 67B, recently granted a 25-year tax holiday to a company in tourism.

89. Tax holidays are commonly not well targeted as they constitute only temporary exemptions to new investments from certain specified taxes. International experience suggests that tax holidays tend to attract footloose industries such as global textile manufacturers, and have minimum backward linkages to the economy. Tax holidays for hotels with a duration of decades are unprecedented and unnecessary, given that once the investment is sunk, the investor will not easily relocate. It is of least value for long-term investments (with a long gestation period). Note that for long-term investors the loss carry- forward provision and depreciation allowances as an essential element of a CIT already provides a de facto tax holiday.

Tax holidays for start-up firms are therefore ineffective. They are particularly prone to abuse such as the manipulation of transfer pricing, so as to channel profits to the untaxed affiliate. Moreover, tax holidays granted to large investors create serious distortions between new and existing firms (probably small and local), which cannot be abolished easily. The unfair competitive cash flow advantage to large foreign investors for long periods tends to erode small firm prospects for survival.

90. Waivers on VAT and excise taxes should be avoided. These waivers are problematic and very costly in terms of revenue forgone (Table 12). When properly designed and operated, the VAT is a consumption tax, not a production tax. The normal functioning of the invoice-credit system means that the tax liability rolls forward to the unregistered person (usually a final consumer but sometimes a small supplier) at the end of the production-distribution chain. The granting of VAT concessions comes from a misunderstanding of the VAT and its faulty interpretation as a production tax (like a turnover tax) as opposed to a consumption tax. In addition, it is wrongly believed that the VAT can play a significant role in setting prices. When a VAT contains numerous exclusions, as is the case of Barbados, it no longer works as a consumption tax but rather as a selective tax on some sectors with the resulting uneven and haphazardly distributed tax burden . . . .

91. Duty concessions for imports of capital or intermediary inputs, targeting new capital investments, are a standard incentive feature in Barbados. They normally operate as a duty waiver granted to registered beneficiaries of the various incentive acts (see above). More problematic, however, are duty concessions granted on a case-by-case basis. Generally, import duty waivers tend to lead to unfair competitionrelative to similar businesses not enjoying the incentiveand are especially open to abuse through leakage into the domestic economy. Duty concessions in Barbados are very costly in terms of revenue forgone. As shown in Table 12, duty exemptions cost about $150 million in 2013 (or about seven per cent of total tax revenue). Duty concessions have exceeded their actual revenue collection. As for the main beneficiaries, in 2013/2014, for example, the top five recipients of statutory waivers included industry, $63.1 million; tourism, $16.6 million; Government businesses, $10.9 million; health, $10 million; and financial industry, $4.8 million.

92. Selective duty exemptions are not the best way to support economic growth. They are inefficient because they have unpredictable and uneven effects on prices, similar to those of a gross receipts tax, because highly uneven duty rates cascade into final prices in uneven ways. They are inequitable because they can discriminate among businesses and persons. In addition, with the Government playing the role of resource allocator, opportunities for uninformed decisions and integrity problems arise. Other problems arise with the cap on the quantity or allowed frequency of purchase of certain goods that can be imported duty-exempt. Such precise quantitative controls are difficult to monitor and enforce effectively. Opportunities for leakage abound, especially given that many imports enter the domestic economy zero-rated for VAT, which obstructs the audit trail.

93. The high cost environment caused by import duties could be better addressed by reducing tariffs instead of granting waivers. The high duty structure prevailing in Barbados creates a big incentive for persons and companies to seek a waiver. The current duty rate structure varies from zero per cent for imports from CARICOM to a high of 216 per cent on selected goods. Table 13 shows that average import duties in Barbados are among the highest in the region and globally. Instead of granting waivers and special concessions that can be seen as discretionary and are very costly to administer, a rationalization of the tariff structure could be pursued. Such rationalization could be done by applying a few, simple bands with more uniform and lower nominal average rates. Duties on industrial or single purpose capital goods and intermediary inputs used in manufacturing processes should be reduced significantly or eliminated. In contrast, final consumption goods could be subject to somehow higher tariffs. The resulting tariff rate could be further lowered across the board or targeted to specific types of goods along with the strengthening of the VAT (less exempt and zero-rated goods).

Recommendations.

1. Consolidate the various individual concession acts into a single fiscal omnibus act that can only be introduced, amended, or withdrawn by Parliament.

2. Consider the introduction of an annual tax expenditure report with an estimation of the revenue forgone to the various tax incentives. This should be an integral part of the Budget process.

3. Include income tax concessions as recommended in Chapter III only in the Income Tax Act.

4. Do not grant new tax holidays (grandfathering those already granted).

5. Use discretionary powers under Cap. 67B sparingly and then only in situations where they address market failures or generate multiplier effects such as infrastructure development.

6. Consider introducing a cap on annual costs for discretionary duty concessions.

7. Minimize VAT and excise tax concessions.

8. Convert import duties into excise duties in respect of all imports of alcoholic beverages, tobacco products, fuels, and motor vehicles that do not compete against domestic production.

9. Rationalize the tariff structure applying a few, simple bands, with more uniform and lower nominal average rates, in order to reduce economic distortions from variations in tariffs and relieve pressures for tariff concessions.

The fund has recommendedGovernment consider converting major allowances and some deductions into credits and eventually integrate the Consolidation Tax into the Personal Income Tax.

94. Individuals in Barbados are subject to a number of taxes, which typically take into account their ability to pay. As with many other countries, it uses progressive rate structures and individual allowances to address redistributive objectives. This chapter focuses on the individual income tax (PIT), and also briefly reviews charges under the National                          Insurance System (NIS).

95. Individuals are subject to PIT that has two rates on employment earnings.The basic rate of income tax is 17.5 per cent and the higher rate is 35 per cent.For 2013, the basic rate applies to the first BDS$35,000 of taxable income and the higher rate to taxable income in excess of this amount. This range of taxable incomes subject to the lower rate is new, having been raised from BDS$24,000 in two annual steps. The PIT is levied on resident individuals’ worldwide income and taxable income subject to the progressive rate structure includes wages and in-kind benefits, business income, pension income, and the value of benefits received under the NIS. The taxpaying unit is the individual; thus in particular working spouses file separately.

96. A “dual-income tax” approach is generally applied to incomes from nonbusiness capital.That is, separate flat schedules are applied to elements of capital income, and taxed at source to the extent possible. Interest and dividends paid from domestic sources are for the most part subject to flat withholding at source, at a 12.5 per cent, which are considered final taxes; otherwise the payments are taxable under the progressive structure.Residential rents are taxed under a different schedule, at a flat rate of 15 per cent. However, capital gains are not taxed.

97. There are a number of allowable expenses and special deductions that are subtracted from earnings in arriving at assessable income. These include contributions to employer-sponsored registered retirement plans and registered retirement savings plans (up to a limit dependent on income level); charitable contributions, travelling allowances for employees who are required to travel as part of their employment, and a special allowance for qualified non-nationals working in Barbados

98. A basic allowance of BDS$25,000 per year is exempt from PIT.Those taxpayers over age 60 are allowed a basic allowance of BDS$40,000. There is an allowance for each dependent child of BDS$1,000, up to a maximum of two children, and an additionalallowance of BDS$ 3,000 in the case of a spouse who has little or no independent income source.

99. Other important deductions are related to housing. Mortgage interest for owner- occupiers and home improvements are deductible up to a maximum of BDS$10,000 per year. Rental payments are also deductible for renters; the deduction limited to the smaller of 20 per cent of rent payments or BDS$3,000. There are in addition several programs introduced recently to encourage adopting energy-efficient and renewable-energy technologies.

100. In addition to income tax, resident individuals who have earned income in excess of BDS$50,000 are subject to a separate Consolidation Tax (CT) effective from September 2013.This is intended as a temporary tax, with a separate return appended to the PIT return and filed at the same time (the tax for 2013 was applied based on earnings in the last four months of the year). The base is gross income, minus itemized allowable expenses and travelling allowance. Tax rates rise with income, but the relevant tax rate applies to the entire tax base, not marginally as with the PIT. The rate structure is as follows:

101. A reverse tax credit is offered that is explicitly linked to the VAT and intended to offset to some extent any residual regressive elements in that tax. Individuals earning less than BDS$18,000 per year and BDS$1,500 per month (and thus having an income that falls below the basic personal allowance under the PIT) are entitled to a refundable credit of BDS$650. This credit was halved for 2013; previously the credit amount was BDS$1,300.

102. PIT is an important revenue source.Over the last five years it has raised on average revenue equivalent to 4.4 per cent of GDP (Appendix Table A1). It has risen significantly more than CIT over this period (although CIT consistently raised more revenue before 2009/10). For 2013, Consolidation Tax raised an additional 0.2 per cent of GDP.

103. Barbados’s lowest tax rate and highest tax rate are both higher than the average of the lowest and highest tax rates in the region (Table 14). The basic allowance is well within the range of others in the region, although it is the third highest in the region. Together, these tend to make the tax relatively progressive compared to the other regional individual             income taxes.

104. An aggregate picture of the nature of the PIT is given in Table 15.This is based on the 2013 returns. In 2013 taxable income overwhelmingly derived from employment and pension income (BDS$3,600 million); and personal, spousal and child allowance overwhelmingly dominated deductions from income (BDS$2,290 million). Other important income sources were National Insurance benefits (included under domestic investment and other income – BDS$ 69 million), income from foreign sources (BDS$70 million), and business income. Net residential rental income was relatively low, at about BDS$10 million.

105. The structure of the PIT has several positive elements, yet its progressivity could be strengthened.The dual rate structure is an appropriate way to generate more tax revenue while ensuring that the burden is shared more in accordance with individuals’ ability to pay. In addition, the basic allowance removes the lowest-income households from the tax net (and in some cases pays a negative tax in the form of the reverse tax credit). The nature of the distribution of PIT taxpayers, based on 2012 assessments, is given in Table 16. Fully 40 per cent of taxpayers, accounting for about 18 per cent of total income, pay no tax (and about half of these receive the reverse tax credit). In addition, the 18 per cent of taxpayers who fall into the upper, 35 per cent, tax bracket account for almost 75 per cent of taxable income, whereas they account for only about 46 per cent of employment income and 45 per cent of total income. The more than twice as many taxpayers in the lower tax bracket account for a slightly smaller share of employment income, 40 per cent, and a significantly smaller of total income, at 37 per cent. This group meanwhile accounts for 1⁄4 of taxable income. However, the picture misses that interest and dividends, which would tend to be concentrated within theset of higher-income households, are taxed separately at the flat, low 12.5 per cent rate; similarly capital gains, which are not taxed, would tend to accrue more to higher-income households. Residential rental income is also relatively lightly taxed; that income and business income would also exhibit a significantly higher degree of noncompliance than salary and pension incomes. All these factors work to reduce the effective progressivity of the individual income tax.

106. One measure that would raise further revenue, while increasing the progressivity of the tax, would be to convert the personal allowances to tax credits, calculated at the lower tax rate.Thus, the personal allowance of BDS$25,000 would become a credit against tax liability equal to BDS$4,375; similarly the child allowance would become a credit equal to BDS$175; and the spouse allowance would become a credit of BDS$525. Based on the income tax data from 2013 returns (Table 15), this move could raise additional revenue in the region of BDS$90 million, equivalent to more than one per cent of GDP.

107. Other deductions could similarly be converted to credits at the lower tax rate, or alternatively be eliminated.Another large deduction taken is for home improvements, including mortgage interest, to a maximum deduction of BDS$10,000. In 2013, total deductions were BDS$166 million, of which 70 per cent represented mortgage interest. This deduction would tend to benefit higher-income households. Converting to a credit wouldreduce this benefit. Going further, a strong case can be made for eliminating the preferential treatment of these expenditures, on the ground that implicit rental income arising from owner-occupied housing is not taxed under the income tax. Eliminating the deduction for home improvements would generate approximately BDS$40 million, equivalent to a little less than 1⁄2 per cent of GDP. A similar case, though less strong, could be made for converting or eliminating the deduction for residential rent paid.

108. Exempting capital gains from income tax reduces the fairness (vertical and horizontal) of the tax, its progressivity, and can introduce distortions. Capital gains would tend to be concentrated in higher-income households. In addition, there is a strong incentive to arrange affairs so that other types of highly-taxed income are converted to capital gains; for example, it is better to take the profit from a business in the form of an untaxed capital gain rather than in the form of (taxed) dividends. Over time, this weakness in the income tax should be addressed. There will be difficult administrative problems to be resolved in implementing this. One relatively easy place to begin is to bring realized capital gains on real property into the tax net. As with other elements of capital income, a flat, schedular approach would be appropriate, at a rate close to the current withholding tax rates on dividends and interest. For simplicity, the tax should apply only to gains accruing after some announced “valuation date”.

109. The consolidation tax introduces an additional element of progressivity into the income tax.This arises from both the relatively high exemption level of BDS$50,000 and the progressive rate structure. Data on the tax for the four months of 2013 (and a straight- line extrapolation for 12 months) is presented in Table 17. About 24,000 taxpayers had a positive tax liability under the tax, from which it can be reasonably inferred, from Table 16, that taxpayers in the lower income tax bracket of 17 1⁄2 per cent had positive liability under the tax.On the basis of collections in the last four months of 2013, it is estimated that the tax will raise about BDS$32 million at an annual rate, 75 per cent of which will come from taxpayers with incomes over BDS$100,000; and with half of that coming from approximately 20 per cent of those taxpayers with incomes over BDS$ 100,000 who have incomes in excess of BDS$200,000.

110. It is significant that the consolidated tax begins to bite at approximately the income level where the National Insurance contributions are capped.The ceiling for 2014 for NIS is BDS$ 52,320 (see the next section), close to the consolidated tax exemption level of BDS$ 50,000. Thus, the consolidated tax can be seen to offset (only partially, as NIS contributions total 21.35 per cent, of which 10.1 is contributed by employees) the fall in average and marginal tax rates arising from the overall taxation on income, comprising NIS contributions and PIT, as incomes rise above BDS$ 50,000.

111. However the Consolidated Tax design has a severe weakness that will need to be addressed eventually if the tax is to remain as an additional progressive element of the income tax. The tax embodies very high marginal tax rates (much higher than 100 per cent) at the income levels where brackets change. This introduces severe distortions for taxpayers with incomes near the bracket changes points. To remove this distortion, the tax will likely need to be integrated directly into the rate structure for the PIT. One element of such integration may be the introduction of a third positive tax rate into the rate schedule of the PIT.

112. The income taxation of small businesses is complex, and should be simplified along with the simplification of small taxpayers under other taxes, especially the VAT.From Table 15 above, net business and property income declared on individual income tax returns totaled BDS$ 104.5 million, equivalent to about 11⁄2 per cent of GDP. Actual taxable could in fact be considerably less than this, as personal and family allowances and other deductions can still be taken against this. Many of these taxpayers would be small businesses, yet they face record keeping and reporting requirements similar to larger businesses. In addition high administrative costs to ensure compliance of these taxpayers further reduce the net social benefit of the application of the tax to them. For these reasons, it would be beneficial to design and introduce a simplified regime for small businesses that is easier toadminister and to comply with, while still raising some revenue for the budget. As discussed in Chapter 1 above, this simplified regime would apply to all businesses below the VAT registration threshold, and would replace both VAT and income tax.

113. Employed individuals between the ages of 16 and 65 must be insured under the National Insurance and Social Security Act. The current pensionable age is 66, with increases of six months each scheduled for 1 January 2014 and 1 January 2018, eventually raising the retirement age to 67.

114. Contributions are determined as a percentage of insurable earnings up to a maximum of BDS$4,360 per month.The total tax rate is 21.35 per cent of earnings, with the employee’s share being 10.1 percentage points. Self-employed individuals must also be insured, and they make contributions of 16.1 per cent of their earnings of up to the same maximum of BDS$4,360 per month.

115. One anomaly that arises is the differential (unfavorable) tax treatment of NIS contributions relative to contributions to registered retirement plans.Registered retirement plan contributions are deductible from income, in determining taxable income, up to a ceiling. Employee contributions to the NIS are not deductible (employer contributions are effectively deductible, since the employee is not required to declare them as income). However benefits under both plans are treated symmetrically under the income tax – both types of pension payments are taxed. The degree to which this introduces unfairness into the overall tax treatment of savings for retirement depends to a large degree on the extent to which there is a direct linkage between NIS contributions and the eventual pension benefit. The mission did not investigate this matter.

Recommendations

· Consider converting major allowances and some deductions into credits, determined using the lower tax rate. To simplify the tax, eliminate minor deductions and allowances, and convert others to credits.

· Eventually integrate the Consolidation Tax into the PIT, to remove the perverse incentives at bracket change points under the current tax.

· Introduce a tax on capital gains on real property transactions, at a rate approximating the current withholding tax rates on dividends and interest.

· Introduce a simplified regime for small businesses (those below the VAT threshold), replacing both VAT and income tax for these businesses.

The Barbados Association of Medical Practitioners (BAMP) is preparing to put a proposal to the relevant authorities for an Ebola screening unit to be set up in Barbados.

BAMP President Dr Carlos Chase made this disclosure to Barbados TODAY last evening during an Ebola Preparedness Education and Simulation Session for doctors at the Errol Walrond Clinical Skills Building at the University of the West Indies.

BAMP President Dr Carlos Chase

During the question and answer section of the session, some doctors voiced concern that neither they nor their offices were fully prepared to deal with any suspected Ebola cases.

A few of these practitioners suggested to Chief Medical Officer Dr Joy St John, who was present at the session organized by BAMP in conjunction with the Ministry of Health, that a screening facility, equipped with specially trained doctors and assistant staff, be included in the island’s Ebola response plans.

Chief Medical Officer Dr Joy St John

“Instead of everybody coming to the doctor or the polyclinic, it might be better to get a screening centre or a screening unit better suited for that purpose.

“They [doctors] don’t have the actual equipment in their offices now,” pointed out Dr Chase.

“As we saw in the demonstration, we need three people to put on the equipment, a separate room for dressing, a separate room for undressing. So that is why some doctors are concerned,” he explained.

Meanwhile, Dr St John informed the practitioners that the Ministry was not expecting doctors’ offices to be turned into screening facilities. However, she said they must be prepared in case “someone self selects and goes to one of your facilities because that is what they are accustomed doing”.

“They are accustomed to coming to you for everything, so they may not be thinking, ‘it is Ebola’.

“We are trying to prepare you, not to be the screening facilities, but in case someone slips through, we are trying our best that everyone is on the same page,” she said.

The educational session highlighted the identification, notification and isolation of suspected Ebola cases, key aspects of personal protection, demonstration of personal protective equipment use and decontamination of an area with a suspected case.

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Lawmen are investigating the brutal beating of a caretaker at The Lodge School in the early hours of this morning.

Details remain sketchy, but Police Public Relations Officer Acting Assistant Superintendent David Welch told Barbados TODAY that he was attacked by two men just after midnight.

Lawmen are unsure what type of weapon was used in the attack.

The caretaker, whose name has not been released, has been hospitalized.

As the sugar industry continues to struggle, one of the island’s plantations has sent home all of its workers.

A top management official in the sugar sector told Barbados TODAY this afternoon that Todds, one of the plantations owned by the collapsed CLICO Holdings, recently sent home its last employees.

The CLICO sugar plantations, which spread across about 2,000 acres of land, may now join several others that have gone out of cultivation.

Industry officials said that cane growers had been challenged financially due to outstanding money owned to them by Government for wages and a planting programme. The state-run Barbados Agricultural Management Company (BAMC) controls 40 per cent of the cane acrerage while private producers own the remaining 60 per cent.

Some of the UWI tourism students presenting their suggestions for rejuvenating St Lawrence Gap.

The St Lawrence Gap should be split in two zones, with one side catering to visitors and locals who are interested in the party scene and other robust activity, while the other side should be a leisure zone for those seeking more relaxation and less hype.

That was included in the range of proposals and marketing ideas that a dozen students of the University of the West Indies offered today to owners of entertainment and accommodation properties and residents in the Gap, as well as tourism officials.

They gave their recommendations at Infinity on the Beach. General manager Renee Toppin described their presentations as stimulating and engaging and being “a lot more than I expected to get out of this morning”.

Coordinator of the UWI’s Masters in Tourism programme Dr Sherma Roberts explained that the students had been tasked to come up with a rejuvenation strategy for St Lawrence Gap, “in recognition that the Gap had a number of problems over the last few years”.

They spent 90 minutes putting forward research-based suggestions, which ranged from a ban on parking in the Gap, with provision for vehicle accommodation on dedicated spots outside the entertainment strip, to masquerade and Spring Break festivals.

Many people who depend on business in the Gap have expressed concerned that the once high traffic entertainment strip is on its death bed.

Just yesterday, Barbados TODAY reported on a call from spokesman for the St Lawrence Gap, Maxwell And Dover Residents Association, Adrian Donovan, for an urgent financial injection to save the Christ Church location from “death row”.

“A financial stimulus needs to be injected into The Gap for its revival, because at present it is on death row. There is no maintenance programme in place and the product looks really run-down. The Gap is too dark; there are a number of lights that are not working and need to be fixed,” Donavan had complained to Barbados TODAY.

His cries were echoed by several businessmen.

A section of the St Lawrence Gap stakeholders at this morning’s session.

Minister of Tourism Richard Sealy has reported successful meetings at this year’s World Travel Market (WTM) conference in the United Kingdom.

He said feedback from Barbados’ trade partners have been “extremely positive, with most of the operators reporting strong growth for 2015, and excitement about the range of events that will be taking place in Barbados.”

This year, the BTMI’s stand was themed around Barbados experiences, to demonstrate the diversity that the island has on offer for its visitors, spanning music, sports, beaches, wildlife, and more.

“World Travel Market remains the signature trade event, providing the ideal forum for good solid business discussions, and the negotiating of future contracts

for 2015 and beyond,” he added, as he spoke from a busy Barbados Tourism Marketing Inc. (BTMI) stand at WTM.

(Lleft to right) Marc James, Partnership Manager at British Airways; Petra Roach, Director USA of the BTMI; Billy Griffith, CEO of the BTMI; Alvin Jemmott, Chairman of the BTMI; Ash van Wensveen, Commercial Manager at British Airways Holidays.

Sealy was joined by newly appointed chairman of the BTMI Alvin Jemmott, who said that the Barbados contingent had important meetings with partners such as British Airways and Virgin Atlantic, as well as new major partners in Europe.

“We look forward to seeing these negotiations bear fruit in 2015,” he said.

BTMI’s CEO Billy Griffith reported that the UK and Europe are gradually emerging from recession, with arrivals from the UK to Barbados up seven percent for this year.

“These signs of consumer confidence are particularly important for our prospects for growth in 2015. The newly formed BTMI will work swiftly and efficiently to identify, negotiate, and share opportunities on behalf of our stakeholders,” he said.

Other BTMI attendees at WTM included Cheryl Carter, BTMI’s director in the UK and Petra Roach, newly appointed director for the US and former head of the Barbados Tourism Authority’s UK outfit. President of the Barbados Tourism and Hotel Association (BHTA) Sunil Chatrani and, BHTA’s chief executive officer Susan Springer also formed a part of the Barbados delegation.

If there was any doubt that Barbados is full of talent, the annual Honey Jam showcase last night definitely removed any uncertainty.

The show, held at the Frank Collymore Hall and hosted by former radio personality Alex Jordan, featured 14 ladies and one group.

The very talented up and coming female artistes lit up the stage and filled the hall with the glorious sounds of music, most of which were original songs across all genres.

They performed to an almost packed audience which included Governor of the Central Bank Dr Delisle Worrell and Dame Maizie Barker-Welch.

Producer of the show Ebonnie Rowe described the girls and the show as the light of her life and appealed to Barbadians to support the show in order for it to continue.