THE MINISTER OF FINANCE and Economic Affairs presented the Financial Statement and Budgetary Proposals on May 30. There are several items that are of significant concern to the international business sector, some of which require further clarification so we can understand their potential impact.
The principle items that have the potential to negatively impact international business are the increase in the National Social Responsibility Levy (NSRL) from two per cent to ten per cent amd the introduction of a new Commission on Foreign Exchange Transactions of two per cent.
The National Social Responsibility Levy Act, 2017 was passed, which while exempting imports for the manufacturing, tourism and agriculture sectors, excludes the international business sector. Further, it overrides any provision in existing legislation that exempts the sector (for example section 20 in the International Business Companies Act).
The elevation of the rate from two per cent, which many businesses simply paid to get imports cleared, to ten per cent makes the impact on the imports of international businesses more significant. This combined with the natural inflationary impact of the combination of this and other taxation measures introduced on domestically sourced inputs, will raise the cost of operations for the sector. Barbados International Business Association will continue to make representations to have the international business sector exempted.
While the cost increases from the other measures may be manageable for most international business operations, the two per cent commission on foreign exchange transactions has the potential to be extremely harmful to the competitiveness of international business operations. Exactly how this measure will be applied remains to be seen, but its description as “a broad-based foreign exchange commission on all sales of foreign currency” is cause for concern.
We believe that this measure is targeting solely situations where Barbados dollars are being converted to in order to help protect the reserves. We expect that this would not apply to the sale of foreign currency coming into Barbados as that would be counter to the objectives of encouraging foreign currency inflows.
In addition, we also expect that no commission would apply to transfers of foreign currency held in foreign currency accounts at local financial institutions. Minister of International Business Donville Inniss, in his contribution to the budget debate on June 1, reinforced this view and advised that clarity was being sought from the Ministry of Finance and Economic Affairs.
However, given the uncertainty surrounding the specifics on the application of this commission, concerns that a broader application impacting all foreign currency movements lingers. Especially now in light of the outcome that we have seen with respect to the NSRL impacting our sector, despite a general understanding within the sector based on existing enactments and discussion with government officials that was not going to be the case.
Until we have clear guidelines as to precisely how this commission on foreign exchange will apply the uncertainty will remain. We hope that such guidance will be forthcoming well before the July 1, proposed application date so that businesses can plan and structure their operations so that there are no unexpected consequences.
Uncertainty and unpredictability are not qualities that we want to become known for as a jurisdiction.
Aside from these specific measures that can directly impact the international business sector, the overall measures proposed when taken together seem contrary to one of the stated objectives of the budget, being to “strengthen investor confidence in Barbados’ economy”.
The significant increases in the cost of doing business and the contracting impact that such significant tax increases are likely to have on the economy, coupled with the absence of any significant and credible measures to address the expenditure side of the equation do little to inspire investor confidence.
Coming less than a year ahead of dissolution of parliament and constitutionally due general elections the position of the government is not an enviable one. However, delay in fundamentally addressing the debt profile, ease of doing business and prospects for growth of the economy will only make the challenge deeper and it will be more difficult to mount a successful recovery.
Gregory McConnie is president of the Barbados International Business Association (BIBA). He raised these concerns in a BIBA’s June newsletter.
