BES president rejects IMF suggestion on VAT
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.
“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.