At a time when Barbados could least afford it, the island’s number two foreign exchange earner is facing a possible “devastating” economic blow, as a result of new budgetary tax proposals announced this month by the Canadian federal government.
Minister of International Business Donville Inniss told a panel presentation on The Implications Of The 2014 Canadian Federal Budget For Barbados As An International Business And Financial Services Centre at Hilton Barbados Resort this afternoon, that any drop in revenue from this sector, which brings in about $870 million a year, could devastate the economy.
“If any of those [tourism or international businesses] drop in their numbers within the next 12 to 18 months in this sector, it could have a devastating impact on this economy that could take time to build back up,” Inniss warned in his contribution from the floor of the event, organised by the Barbados International Business Association.
Experts at today’s panel discussion explained that the one measure, which could force some locally based foreign companies to close down, relates to businesses whose income is not now taxed in Canada.
If the proposals are approved by the Federal Parliament, companies, especially those which do business through a swapping arrangement of their insurance risks, will be adversely impacted.
“So we have begun to address that . . . . I have already spoken to our folk in Canada . . . the High Commissioner to Canada; and my view at this point in time is that there is no need for political interference. I rather the practitioners, the beneficiaries in Canada in particular, who are out there, championing the cause,” the minister suggested.
However, he told the business leaders that the Government would work quietly and talk to who it has to talk to.
“I don’t think you will see us rushing up to Canada and make some noise [with James] Flaherty [Canada’s finance minister], because they are some matters you just don’t win in that manner,” he declared.
Inniss assured BIBA that the Government would put its resources to work in Canada for its benefit, while using its diplomatic channels.
Leader of tax practice at KPMG Barbados, Wayne Lovell, also told Barbados TODAY, at the end of the panel discussion, that if enacted, the proposals could force some locally based foreign companies to fold up.
Lovell, who had earlier shared the panel with Ernst & Young tax director Dominique Pepin, PricewaterhouseCoopers (Eastern Caribbean) tax services leader Gloria Eduardo and Cidel Bank & Trust deputy chairman Ben Arindell, said the tax measures could also have ripple revenue fallout due to losses in corporation and income taxes and rents.
“The international financial services centre is the second largest contributor to our economy. Although tourism is the number one, a lot of people who come here to do business for the international financial services centre, are also counted in the tourism numbers. We don’t know; maybe it is the number one,” he observed.
“So if there is a decrease in contributions from this sector, it will have a tremendous effect on us, not only from the corporate tax, but you also have the individual taxes from the individuals who are employed, and then you have the spin-offs . . . rental of houses, directors coming here for business meetings, the filling up of restaurants, the rental of cars –– it just keeps going on and on. This is the concern,” warned the tax expert.
Earlier, experts on the panel had pointed out that essentially only one of the several proposals would have negative implications for the international and financial services sector.
“Effective for taxation years that begin on, or after February 11, 2014, the budget proposes to amend the rules applicable to captive insurance companies, order to address insurance swap arrangements,” stated the tax officials.
“It is basically where you get Canadian insurance risks, that are . . . swap arrangement that allows the income from the insurance of these risks not to fall into what we call Canada’s FAPI [foreign accrual property income] rules. Currently we have some companies that do this. They are planning to stop that, where there is a swaping of these risks,” Lovell told this paper as he sought to explain the swap arrangement and its impact.
“We don’t know if the companies would fold up and leave, but it will impact them because currently, that income is not taxed in Canada; it does not fall into FAPI. What they (government) is saying, it will now be taxed in Canada,” the KPMG official warned.