2012 Financial Statement And Budgetary Proposals (Part 2)
Wed, June 27, 2012 - 12:03 AM
In the International Business and Financial Services (IBFS) sector there was an 11.0 percent increase over last year in licenses renewed up to February, but new licenses granted during the first two(2) months of the year were 37.0 per cent fewer than those issued during the same period in 2011.
Preliminary estimates showed activity in the productive sectors to have expanded by 2.1 per cent for the first three months of 2012. This was driven by a 5.1 per cent expansion in tourism output as long-stay tourist and cruise arrivals increased by 2.3 per cent and 16.5 per cent respectively. The primary factors in the growth of long-stay arrivals were increased performances in the Canadian market by 8.0 per cent, the CARICOM market by 8.5 per cent and the European market which grew by 18.0 per cent on account of a fortnightly charter service out of Sweden.
Disappointingly, the US and UK market fell by 4.3 per cent and 5.6 per cent respectively. In the case of the UK market, cruise and stay-over packages that were previously offered by two cruise ships were discontinued, while the USA market was adversely affected by the reduction of seating capacity out of Dallas and the discontinuation of the Delta Airlines flight from Atlanta.
The International Business and Financial Services sector continued to be faced with strong tax competition from other Caribbean jurisdictions. However, Barbados was able to retain its relative market share. A total of 2,834 licenses were renewed between January and April 2012, 5.0 per cent above the renewals that were issued during the comparable period 2011. The number of new licenses issues stood at 186 for the period January to April 2012, compared with 232 in the corresponding period of 2011. There were 128 new licenses issued to international business companies, down from 197 in the similar period of 2011.
The manufacturing sector continued to be depressed during the first quarter of 2012 as output fell by 1.7 per cent, while non-sugar agriculture is projected to have contracted by 4.1 per cent
Activity in the non-traded sector expanded by 1.3 per cent at the end of March 2012, as the indirect effects of tourism activity were reflected in the construction and wholesale & retail sub-sectors. The construction sector is estimated to have advanced by a further 3.4 per cent during the first quarter on account of activity in the housing market, as well as tourism-related projects. The wholesale and retail sector is estimated to have grown by 2.0 per cent, spurred in part by an improved tourism outturn and increased imports.
Unemployment and Inflation
The lingering effects of the global and financial crisis coupled with slow economic growth reflected the level of unemployment, which rose to 11.2 per cent in 2011, up from 10.7 per cent at the end of 2010. The inflation rate stood at 9.1 per cent at the end of February 2012, compared with 6.3 per cent a year earlier.
Domestic deposits at commercial banks fell by $38.2 million for the year (data up to March 21), while credit to the non-financial private sector increased by $15.6 million. The excess liquidity ratio edged up slightly, moving from 9.6 percent in December 2011 to 10.9 percent at the end of March 2012. The majority of this increase was attributed to increased cash holdings by commercial banks ($61.0 million), in addition to excess Treasury Bill holdings of $38.0 million. The average Treasury Bill rate and the interest rate on commercial banks’ deposits and loans remained unchanged.
Loans extended by credit unions expanded by 6.5 percent (or $74.0 million) for 2011 and were primarily driven by new mortgages which generally represent about 40.0 percent of the credit unions’ loan portfolio. Deposits at credit unions and other nonbank deposit taking institutions grew by 8.0 percent and 4.0 percent, respectively, by the end of 2011. Data to January 2012 show that the mortgage portfolio at trust and Finance companies fell marginally (by less than one percent), while private mortgages at commercial banks declined by 1.8 percent.
From this report Mr. Speaker we can see that the general trajectory of our economy is headed in the right direction. Clearly gains have been made in halting the massive negative declines experienced recorded in the 2008/09 period our key foreign earning sectors and some marginal growth has returned even though conditions in many of our key trading partners remain challenging.
Equally, we have made significant progress in bringing our fiscal deficit down to the extent that we are in fact slightly better than the targets we set in the Medium-Term Fiscal Strategy for this stage of the programme.
Relative to what we expect in 2012, as has been outlined earlier, much of that will depend on how the global economy handles this new round of seeming down turns across key economies.
With our two most relevant source markets, UK and USA clearly heading back into recession of slowing down dramatically, Barbados and the rest of the region can expect as the World Bank predicts, to experience another steep economic and financial shock.
Remaining optimistic, but yet cautious, the expectations are that real economic growth in 2012 could lie between 1.0 per cent and 1.5 per cent. This would be driven by construction activity both in the tourism and Government sectors. Beyond 2012 and into the medium term, growth rates of 2.0 to 3.0 per cent are possible, provided key sectors such as tourism, construction and international business are able to fully recover. Continued macroeconomic stability will be contingent on Government’s ability to carry on the implementation of its Medium Term Fiscal Strategy. It will also be dependent on maintaining a comfortable level of foreign reserves, which are expected over 2012 to cover imports and other foreign payments, as in 2011. In this regard, the foreign reserve cover is expected to be about eighteen (18) weeks of imports.
It is expected that inflation pressures should abate somewhat as long as the current trend of reduced global fuel and food prices is maintained. There has been some evidence of this as domestic prices would have fallen at the end of February 2012. Hence, if this pattern continues then we could see inflation falling to below 9.0 per cent. Regarding the unemployment outlook, improvements will be dependent not only on a sustained global economic recovery, which would positively benefit our exports of goods and services, but also on current domestic policies designed to boost growth. As such, the aim over the short to medium term will be to work towards bringing the unemployment rate back to single digits.
Fiscal projections 2012-2013:
The Estimates for 2012-2013 project current revenue on the accrual basis at $2,656.1 million. Revenue to be collected during the 2012-2013 fiscal year is set at around 29.1% of GDP estimated at $9,292.7 million to yield $2,620.1 million.
Taxes on incomes and profits are projected at $834.6 million on the accrual basis. When bad debts are taken into account, the amount to be collected is expected to be $819.6 million, an increase of $44.0 million or 5.7% above the amount to be collected in 2011-2012. Income tax is expected to increase by $32.1 million or 7.8% to $444.6 million. The increase in projected revenue for income tax is due to increased efficiencies of the new automated tax system. In general the information system is better particularly as it relates to the capturing of data which was previously entered by the individual on a manual basis.
The uploading of data from third parties has widened the net for income taxes - For example (1) data uploaded from the NIS has served to identify individuals who receive benefits which should be taxed and (2) individuals who previously received income from more than one employer but only declared one source are now faced with the fact that employers are required to upload this data. This allows an individual’s additional income to be taxed. These are some of the major efficiencies of the new automated tax system that have served to widen the tax base.
Corporation Tax is projected to increase by $8.3 million or 2.8% to $305.0 million. On the other hand, taxes on property are expected to realise $146.7 million, an amount of $3.4 million less than was collected during 2011-2012.
On the accrual basis, taxes on goods and services are projected at $1,267.6 million. Taxes to be collected on goods and services during the year are expected to rise by $82.9 million or 7.1% to $1,249.1 million. This tax category receives its principal impetus from receipts of VAT and Excise Duties, which are expected to contribute $923.9 million and $179.4 million respectively to the Treasury in the fiscal year. This higher projection is based on the actual receipts up to January 2012 and the expected amounts for February and March 2012.
Import duties are projected at $212.0 million, increasing by $23.6 million over the projected amount for fiscal year 2011-2012. This projection is based on projected growth in 2012-2013 as well as the actual receipts up to January 2012 and the projected outturn for 2011-2012.
Special receipts are expected to decrease by $26.2 million to $27.5 million. An amount of $30 million was received in 2011-2012 for Sundry Receipts and this amount is not expected to be received in 2012-2013.
Non-tax revenue is expected to increase from the amount approved in 2011-2012, increasing by $13.0 million to $130.6 million due to dividend income from the Barbados National Oil Company Limited.
The Government of Barbados is expected to receive grant income of $20.5 million, of which $18.5 million will come from the European Development Fund (re the Human Resource Development Strategy).
Current Expenditure 2012-2013
Current expenditure, exclusive of amortization of $440.5 million, is projected at $2,933.1 million. When converted to the cash basis, and bad debts and depreciation expenses are excluded, current expenditure is expected to increase by $139.9 million or 5.1% over the 2011-2012 revised figure to $2,890.3 million.
Wages and Salaries are expected to increase over the revised amount in 2011-2012 by $22.9 million or 2.8% to $818.6 million. This increase is mainly due to increments. Constituency Empowerment and Poverty Alleviation were previously shown as transfers but the staff components have been shown separately in the Personal Emoluments for 2012-2013.
Expenditure on goods and services is expected to decrease by $0.2 million from the approved figure for 2011-2012 to $432.8 million. Current transfers are also projected to decrease over the amount approved in 2011-2012 by $9.2 million or 0.9% to $1,017.5 million.
Bad Debt and Depreciation expense are projected to be $15.8 million and $25.0 million respectively.
Non-Capital Assets consisting of repayment of loans to Government are projected at $0.7 million, the same amount as that approved for 2011-2012.
Interest payments in 2012-2013 are expected to increase over the 2011-2012 revised figure by $13.1 million or 2.4% to $555.0 million due to new loans being brought on to the books.
Amortisation of $571.6 million is projected, increasing by $129.1 million or 29.2% over the 2011-2012 revised figure due to an increase in the issue of debentures.
Capital Expenditure 2012-2013
Capital expenditure is projected to increase from the amount approved for 2011-2012 by $19.7 million or 7.8% to $272.3 million on the accrual basis.
Capital assets are projected to increase over the revised 2011-2012 figure by $28.7 million to $86.3 million. The amount is expected to be $18.5 million more than the amount approved in 2011-2012. Capital transfers are projected at $49.3 million, $2.8 million less than the revised figure for 2011-2012.
Fiscal Balance 2012-2013
As indicated previously, current revenue of $2,620.1 million is expected to be collected, of which $2,469.1 million is tax revenue and $151.0 million is non-tax revenue and grant income. Total expenditure of $3,596.7 million consists of current expenditure of $3,461.9 million and capital expenditure of $141.9 million on the cash basis. When amortization is excluded, a deficit of $412.1 million on the cash basis is expected, representing 4.4% of GDP. On the accrual basis, the negative net operating balance is $326.2 million representing 3.5% of GDP.
Debt Sustainability Analysis
A recent Debt Sustainability Analysis (DSA) carried with assistance from CARTAC, concluded that Barbados remains at high risk of debt distress. This is largely consistent with the results of the IMF’s most recent DSA conducted on Barbados which indicated that the country’s debt “remains high and vulnerable to shocks.”
The debt to GDP ratio remains high and debt sustainability is a cause for concern, particularly if projected economic growth is slower or lower than expected and in the absence of policy changes. This is particularly acute in light of the negative primary balances that Barbados has recorded since 2008.
Consequently, efforts were concentrated on finding credible revenue enhancing and expenditure restraining measures which could be implemented to change the upward trajectory in the debt ratio.
The results yielded a steeper and quicker decline in the debt to GDP ratio, and are being actively considered for inclusion in the Medium Term Debt Strategy.
Deficit Financing 2012-2013
In 2012-2013 it is expected that $754.3 million or 76.7% of the fiscal deficit on the Accountant General’s basis will be Financed by domestic sources. The balance of $229.4 million will be foreign Financed in the form of capital project inflows and borrowing in respect of Policy-Based Loans.
Mr. Speaker, having set the context within which we are operating, outlined Government’s programmatic and operational approach to managing the economy in recessionary times, and highlighted the results we have achieved thus far and what we expect over the next year, allow me to move on to specify the additional policy interventions which we believe will assist the country in achieving our objectives.
In this regard Sir, for the avoidance of doubt I am mindful to remind Barbadians what those overall objectives are:
- To maintain stability in economy by managing our foreign exchange function to ensure we have adequate levels of reserves to meet the demands of society and thereby defend our current peg
- To meet the revenue and expenditure targets as set out in the Medium-Term Fiscal Strategy (set at 4.6 % of GDP for 2012/13) and a balanced budget by 2016/17
- To raise the level of investment in traditional and new economic sectors to grow or economy at a faster rate and thereby either expand our foreign exchange earning capacity and at the same time reduce the amount we utilize for key national activities.
- Continue with our programme for national economic restructuring in strategic areas so as to build a strong platform for sustained economic growth in the medium and long term
- To protect the most vulnerable in our society from the worst effects of the economic challenges we face.
Against this backdrop Mr. Speaker it is critical for all Barbadians to appreciate the depth of the economic challenges we face. We have to understand that injudicious decision-making on either side of the spectrum will not only unravel the gains that we have made so far on the road to recovery but seriously compromise the things which we have come to cherish as part of the Barbadian model.
Free education and health care at point of delivery, subsidized transport, refuse collection and others have all been critical to our success as a nation but will be severely affected if we do not all pull our weight to afford these social amenities.
Strategic investments in tourism, manufacturing, agriculture, small business development and innovation are all needed now and in the medium term if Barbados is to weather this economic storm and emerge even better for it. We cannot grow our economy if these investments are not made. We cannot make these investments if the Government cannot bring its high deficits down and eventually balance its budgets.
And we most definitely will not be able to keep people employed or generate more job-creating activity if a small segment of the population is doing well financially while the vast majority of the others are not.
We have to strike a delicate balance between adjustment measures, growth interventions and defending the Barbados dollar against devaluation. It means Mr. Speaker that collectively everyone must, during this period of economic challenge, carry some of the burden of helping the country to firMy regain its footing.
The following measures I submit Sir, are intended to take us a further step along the way to achieving that. They are not perfect, because we are not perfect. But, they are appropriate to the circumstances we face and allow us to gradually restore, repair and rebuild this proud society of ours in a real way.
We have had scores of meetings these past weeks, with traditional and even new sector groups that never got the chance to engage the Finance Team before. Equally we have listened with great humility to the concerns of the average Barbadian on the streets and have reflected deeply on their requests. I want to thank all of them for their sincerity and input. I say to them we share your deep concern for what is happening in Barbados and we accept your assurances of support. You may not see reflected in these measures everything which you asked for but I know you appreciate that we cannot do everything at once. Your desires will not be forgotten.
The Budgetary Proposals
Mr. Speaker, in October of 2010 I introduced a series of adjustment measures designed to assist with a programme for fiscal consolidation. These included: principally, an increase in the VAT from 15% to 17%; the imposition of a 50% increase in the Excise Tax on Gasoline and Diesel and; a removal of the tax-free allowances for applicable workers.
I promised at that time to review these impositions after eighteen months to see what progress we have made with our programme and whether there was need to either remove or continue with these measures in place.
We have completed our reviews and have decided on the follow:
- The VAT rate of 17.5% will remain in place until further notice. The VAT has proven to be a most effective and efficient instrument in our efforts to increase revenues and help close for fiscal deficit.
- Given the seeming continual reduction in the price of oil on the World market, now put at just over 80 dollars a barrel, and which is beginning to filter through to domestic price for the refine products, we have decided to retain the 50% increase for a little while longer to assist in attaining our revenue targets and contribute to our expanding alternative energy programme. We will however give the assurance that should the price spike upwards again pass the 95 dollars a barrel in the near future we will adjust the rate downwards at an appropriate rate to give an ease as necessary.
- Following the imposition of the taxes on the travel and entertainment allowances and in the preparation of the legislative instruments, it was drawn to the Ministry’s attention that in fact there was no legal basis for these exemptions but this had developed over time as an administrative practice by the Inland Revenue Department which was increased in amount over the years by successive Governments. As an instrument for assisting people in having increased disposable income the tax free allowances have been very effective in assisting with both spending and savings in the local economy. As a result their removal has been a cause for understandable concern. However over the years this method has been extensively abused by employees and employers who have received extensive allowances for activities which in many cases never occurred in the manner in which the allowances were conceived to be used. As such the revenue loss to Government has grown exponentially over the years as more and more individuals in the higher tax brackets continued to receive a lower base salary and a high allowance payment.
While we have surmised that some level of relief is now desirable in helping people in Barbados to continue to meet their obligations and invest in our economy we have decided that other ways to effect this reality must be found. Added to this Mr. Speaker, is the fact that, as the figures clearly demonstrate, we are not yet out of the woods with our fiscal situation and prudence dictates that any actions we take must be in moderation and in keeping with our stated goals as I have outlined.
In order to strike this delicate balance I proposed that as of August 1st 2012, we will increase the tax threshold from 24,200 to 30,000 and adjust the effective tax rate at the bottom from 20% to 17.5 %. This will effectively mean that all those persons earning between $24,200 and $30,000 will pay 17.5 % on the amount between $24,200 and $30,000 and those earning more than $30,000 will pay 17.5 % on the assessable income up to $30,000 and will continue to pay the upper rate of 35% on anything above 30,000 dollars.
Mr. Speaker this measure is expected to give full restoration to some categories of workers particularly those in the lower allowance granting salary scales and partial restoration of the amounts previously given as non-taxable allowances to those in middle and higher grades. It means that all will be better off than what currently obtains with the taxed allowances but not all will be fully restored.
As I indicated this is what we have surmised is feasible in the circumstances and what will help to ensure that we all assist the country to achieve its objectives.
Finally on this point allow me to advise the House that it is the Government’s intention to undertake a complete review of the entire tax system next year and it is our firm expectation that coming out of that exercise a further lowering of the income tax thresholds and rate of tax will come down and full restoration will result.
This measure is expected to result in a revenue loss to the Treasury of 29 million dollars. And to compensate in part for this expended loss in revenue the Ministry will immediately instruct all ministries to adjust their expenditure budgets downwards by 2 percent for their 2012 allocation appropriated by this House in March. This will be to ensure that we stay firmly with our fiscal targets for this year and the overall Medium-Term Fiscal Strategy. It is expected that this cut will bring
Health and Human well-being:
Sir, it is now widely accepted that Barbados as a relatively sophisticated small developing country has seen in the last two decades significant changes in our life styles as we enjoy the modern trappings of convenience. While most of these have been for the better there is a growing concern that these same life style changes have contributed in large measure to the growing prevalence of life style illnesses such as chronic non-communicable diseases. A variety of cancers, hypertension, diabetes, and heart disease are only but a few of the critical health challenges confronting thousands of Barbadians.
We also know Sir, that especially with these types of illnesses early detection and treatment can often lead not only to the saving of lives but the leading of a far more comfortable existence post diagnosis. It can also lead to a massive reduction in personal and state cost for treatment due to hospitalization. Additionally it can contributing to a drastic reduction in man hours lost due to time away from work while contributing to maintaining work place productivity.
Bearing these factors in mind and following consultations with our colleagues in the Ministry of Health and further afield I now propose to introduce this income year an “ounce of prevention tax credit” for up to $750 dollars on a comprehensive annual medical examination for persons 40 years and over. The allowance can be claimed at filing time and should be accompanied by an electronic copy of a certificate verifying the procedure was done and signed by a registered medical practitioner.
INTERNATIONAL BUSINESS AND FINANCIAL SERVICES SECTOR:
Since 1995, Barbados through its Double Taxation Agreement with Canada has been the lowest tax jurisdiction whose companies were permitted under Canadian law to generate exempt surplus i.e. taxed income in Barbados that could be repatriated to Canadian parent companies without further tax being incurred by the parent companies. However Canada has recently changed its Income Tax Act to expand the number of countries that qualified to have the earnings as a subsidiary be categorized as exempt surplus as defined under the Act. The change extended the exempt surplus status to countries that signed a Tax Information Exchange Agreement (TIEA) with Canada. The TIEA measures were first announced in the 2007 Federal budget in order to encourage foreign Governments to enter into TIEAs with Canada. The Canadian Government also announced that it would take measures to assist in the negotiation of TIEAs with jurisdictions with which it does not have a comprehensive double taxation treaty. This measure came into effect in January 2010.
Countries therefore with zero taxation regimes e.g. Bermuda, Bahamas and Cayman which have signed TIEAs with Canada have become the lowest cost tax option that can generate exempt surplus. This has caused the international tax advisors both internal and external to review their companies’ existing structure with a view to possibly moving their organizations to zero tax jurisdictions.
In 2011 Invest Barbados contracted a retired Inland Revenue officer to conduct a study which attempted to identify the sector’s contribution to the economy. Information from the Inland Revenue Department, the International Business Unit of the Ministry of International Business and International Transport and the Central Bank as well as from some international business entities was sourced. The study garnered statistical information on international business entities for income year 2010, and it was discovered from the sample that for every dollar collected in corporate tax revenue ($186 million), a further three dollars and seventy-two cents ($692 million) had been spent in the economy. This included $208 million in employment costs, $264 million in professional services, $53 million in leasehold arrangements and assets purchased locally, $32 million in rents and $26 million in other Government revenues. In assessing the impact of companies migrating from Barbados to zero tax jurisdictions it should be noted that apart from the $212 million in Government revenue, the $667 million of additional spend in the economy generated by these entities should also be considered. It should also be noted that while the top 20 IBCs contributed $120 million in corporate taxes, the spend in the economy was only $58 million, while the majority of the money spent in the economy ($643 million) was by smaller tax-paying and non tax-paying companies.
A further study was done by the Inland Revenue Department providing comparative analysis with the information provided by Invest Barbados. The following was submitted:
Conclusions of the Study
1) Based on the analysis by the Inland Revenue Department the Canadian risk is estimated to be about $40M, as compared to $88.5M for the total entities.
2) A move from the 1% rate to 0.5% would result in a revenue loss projected at $58M;
3) A move from the 1% rate to 0.25% would result in a revenue loss projected at $87M; and
4) A move from the 1% rate to 0.1% would result in a revenue loss projected at $104M.
Notwithstanding the above scenarios, a Committee comprising representatives from the Ministries of Finance, International Business, Office of the Chief Parliamentary Counsel, Invest Barbados and tax consultants from Ernst and Young, who examined all of the issues recognised that other measures for the longer term needed to be considered and it would wish to continue looking at these so that a wider and fairer scope of measures that include those smaller companies with the majority of spend in the economy could also be realised. It should also be noted that although the initial intention was to look at International Business Companies only, it was realised after further investigation that Societies with Restricted Liabilities and Offshore Banks could also be impacted by the migration effect. All scenarios therefore include these entities.
Having considered the conclusions of the study undertaken by the Inland Revenue Department, the Committee recommends and we propose that the following measures be taken to attempt to stave off the exit of international business entities from Barbados:
- i. that the International Business Companies Act Cap 77 and the Societies with Restricted Liabilities Act be amended to change the tax rate on the highest band for taxable income for income years 2012 and 2013;
- ii. that the tax schedule in Section 10 (1) of the International Business Companies Act be amended to read as follows:
(a) 2.5% on all profits and gains up to $10,000,000;
(b) 2.0% on all profits and gains exceeding $10,000,000 but not exceeding $20,000,000;
(c) 1.5% on all profits and gains exceeding $20,000,000 but not exceeding $30,000,000; and
(d) 0.5% on all profits and gains in excess of $30,000,000.
- iii. that the lower band of 0.5% apply for income year 2012 and that this be changed to 0.25% for income year 2013;
- iv. that the changes apply to legislation for Societies with Restricted Liabilities as well as offshore Banks;
- v. that the range of services eligible for the Foreign Currency Earnings Credit be expanded to include exploration, extraction and other mining, oil and gas activities, licensing and sub-licensing of intellectual property and shipping services; and
And finally that even though there was a projected revenue loss of approximately 58 million dollars in the first year there was likely to be a claw back of close to 25 million dollars as a result of new entities establishing in Barbados particularly because of the new low rates. This would therefore result in a net revenue loss of about 23 million dollars.
While I am on matters pertaining to this sector Mr. Speaker, I will also take the time to alert the House that very shortly after we return from the post budget break the Ministry of International Business and the Office of Attorney General will be bringing four pieces of major IB legislation to the House for debate and passage in a special International Business legislation day. These pieces will look at:
- Money Laundering and Financing of Terrorism (Prevent and Control) Bill
- Foundations Legislation
- International Corporate and Trust Providers legislation
- Societies with Restricted Liability Act.
The passage of these pieces of legislation will provide our jurisdiction with a set of critical new tools with which to market the country as a premier destination for IB investment.
Land Tax Rebates
Mr. Speaker, as you are aware, the methodology regarding the application of rebates for land taxes was changed for the financial year 2011-12. This change meant that the tax demanded was used as the base rather than the value of the property. While this amendment did not have any impact on the resultant tax for the hotel sector, there were changes in the agricultural and the pensioners sectors.
On account of the varying rating structure for residential properties, the level of tax rebates enjoyed by pensioners ranged from 50% at the bottom, and rising to as high as 82% as the values increased.
For the financial year 2010-2011, 6,323 properties benefitted from the rebate awarded to pensioner-occupied homes. The pre-rebate charge for these properties had amounted to $5,585,495.30. As a result of the pensioner rebate, the total tax demanded was $1,759,225.22, a saving of 69% on average.
For the financial year, 2011-12, there were 6,654 properties which would have been granted the pensioner rebate. This year the rebate level was standardized at 50% across the board with the resulting pre-rebate figure of $5,152,688.25 being demanded and a post-rebate of $2,576,344.13 being charged, a saving of 50%.
The year 2011-12 was also the start of a re-evaluation cycle, and some properties, with an increased valuation and the change in the application, saw a rise in their tax demanded.
Since it was not the intention of the adjustment to penalize taxpayers, it is proposed to increase the rate of rebate in order to compensate for the increase in the tax demanded which came about from the increases in the land values. Therefore the level of rebates for pensioners can be raised from the 50% to 60% or as is appropriate.
The revenue impact will be negligible.
Land Tax Amnesty:
The arrears owed to the Land Tax Department date back to 1981 to 1982 tax year. Of the amount owed over the thirty-one (31) years the principal accounts for 68% of the total, the penalty 3% and the interest 29%. During the first twenty-three (23) years of arrears, that is, 1981/ 1982 to 2003/ 2004, the amount owed to the Department totaled approximately $46, 632,825.65 of which 39.5% was principal, 2% was penalty and 58.5% was interest. In is only in the latter years that Principal has outpaced the interest charged.
In our continued efforts to reduce the high level of arrears, an amnesty will be offered to all tax payers for amounts owing from 1981-82 to 2011-12 with the attached conditions:
- The proposed amnesty will be for thirty (30) days commencing July 2, 2012 and ending July 31, 2012
- The amnesty will allow for 100% waiver of both the penalty and interest dependent on the full amount of principal being paid in a one-off payment for the respective year due. This will allow persons to take advantage of multi-year payments even if they were not in a position to pay off the full amounts.
- There will be no extensions of the amnesty.
Motor Vehicle Duties:
Since 2008 available evidence has demonstrated that costs from foreign car Manufacturers have been escalating so rapidly that it has almost reached an unavoidably critical point. Indeed so steep has been the rise that some popular models have increased in price by more than $10,000 per unit putting them out of the reach of the average customer.
When the chargeable value on vehicles was introduced many years ago it was never intended to negatively impact on mid-size cars, and the limit was at $30,000 which allowed these vehicles to be available to the average consumer. However, in 2002, against a backdrop of manufacturer’s increases and appreciating currencies, an approach to the Ministry at that time for an increase in the limit to counteract rising prices was acceded to and the limit was raised to $45,000 to address this issue and to ensure that smaller vehicles were not penalized.
It would appear that a very similar situation has arisen again and when matched with the reported decline in new car sales because of the downturn in the business cycle estimates are that some garages are losing up to 40% in sales.
In this regard, the Barbados Automobile Dealers Association has petitioned the Ministry of Finance for an adjustment in the chargeable value on mid-sized vehicles and a 40% reduction in the excise tax.
Having consulted with the Comptroller of Customs on this matter and given the national contribution of the sector to the economy of Barbados - not least among which is the employment of close to 20,000 Barbadians - I propose to:
- Increase the chargeable value on new vehicles from $45,000 to $55,000 with a review after one year.
- Lower the Excise tax by 25% with a review after one year.
Mr. Speaker I am however also proposing that with immediate effect that the excise tax rate of 9.31% for locally manufactured cars should be removed from the Act thereby applying the same rates of 20% to 120% to various categories of motor vehicles whether imported or not by registered manufactures. By continuing to have a local rate, the revenue loss in some cases would be approximately 100% of the excise taxes on each vehicle.
WTO rules prohibit the discriminatory practice of having the tax on any locally produced goods at a rate lower than that of the imported goods. This anomaly was also drawn to the attention of the Barbados delegation during the EPA’s negotiations.
- 2012 Financial Statement And Budgetary Proposals (Part 3)
- 2012 Financial Statement And Budgetary Proposals (Part 4)
- 2012 Financial Statement And Budgetary Proposals (Part 1)
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