Social responsibility levy among new measures announced in 2016 budget
Government is hoping to raise in excess of $100 million in revenue per year from new taxes, as it aims to lower its fiscal deficit to an estimated 2.6 per cent of Gross Domestic Product (GDP) by the end of the current financial year. The Freundel Stuart administration is also looking to enhance foreign exchange earnings while shoring up the international reserves, mainly through investments.
As such, Minister of Finance Chris Sinckler Tuesday outlined a number of revenue raising measures and plans to attract more foreign exchange as he delivered the highly anticipated 2016 Financial Statement and Budgetary Proposals in Parliament.
In his near three-hour presentation, Sinckler also pointed to Government’s intention, through continuation of its fiscal consolidation programme, to trim its expenditure by $25 million “from all areas of discretionary expenditure”, while targeting an additional $25 million in spending adjustments, following a proposed mid-term Estimates review of all Government ministries.
Pointing to the issue of health care funding, Sinckler announced that effective September 1, 2016 there would be a National Social Responsibility Levy “to assist in offsetting the costs associated with financing public health care service provision in Barbados”.
The minister explained that this 2 per cent tax, which will be applied on the customs value of all imports, with the exception of goods for the manufacturing, agriculture and tourism sectors to avoid double taxation, was an interim measure as Government sought to establish a national insurance fund, based on employer and employee contribution.
“The national health insurance fund would work by guaranteeing a basic benefit package to the population, would be efficiently administered, and would engage the private sector providers of care as well as non-governmental organizations,” he said.
“My understanding is that the Ministry of Health is currently working with key stakeholders and partners both in and outside of Barbados to begin the process of putting together a firm proposal to the country for consideration after approval by the Cabinet for such a scheme. However, with the best will in the world, such a process is likely to take no less than two years before implementation,” Sinckler explained, adding that Government already allocated approximately 11.0 per cent of its total expenditure to the health services.
“Bearing this in mind, and ever wary of the need to ensure that we still stay within the bounds of our fiscal consolidation and debt sustainability strategy, I now propose that effective September 1, 2016, there will be imposed a National Social Responsibility Levy to assist in offsetting the costs associated with financing public health care service provision in Barbados,” he announced.
Sinckler said regional or international interests, including diplomatic missions covered by relevant conventions would be exempted from payment of the levy and that the tax would be applied before waivers were given. Any waivers, he advised, would be at the discretion of the Minister of Finance.
He anticipated that the levy would have an impact on imports in the early stages, “especially consumer imports, which represent over 60 per cent of the total imports of goods”, but this impact may not be felt immediately because of the high import content and the time it would take to adjust consumption patterns.
“However, it is recognized that over time, the tax . . . will be reviewed given its impact on growth,” Sinckler promised.
The levy is expected to raise annual revenues of $60.8 million, while the additional revenue expected from VAT, which will be applied after the levy is imposed, would be $62.1 million, the minister predicted.
“The expected earnings from the application of the levy on domestic output will be around $19.2 million. In total, it is estimated that the new National Social Responsibility Levy will realize additional annual revenues of $142.1 million, which when prorated from September 01, 2016, yields $82.9 million this financial year,” Sinckler said.
The revenue raised from the levy will go into financing health care, while part of the proceeds will go towards a new fleet for the Sanitation Services Authority (SSA) and to procure parts for the existing fleet.
“Not only are we going to use part of the resources from this levy to bring relief to the capital needs of the agencies, we will also set aside at least $5 million to go towards the initiation of a national clean-up and de-bushing programme to be implemented over the next five months to clean this country up,” Sinckler said.
Acknowledging that the new tax on imports would have negative impacts on “some of the more vulnerable among us”, Sinckler proposed that an additional $2 million be allocated to the Welfare Department this financial year to assist in the expected increase in requests for assistance.
In addition, Sinckler proposed expansion of the areas for special incentives for investments under the Tourism Development Act and the establishment of duty-free zones by Christmas, as he explored additional ways to add to the approximately US$900 million which the tourism industry generated last year.
He identified Speightstown, St Peter to Harrison Point in St Lucy; St Lawrence Gap, Christ Church to Ragged Point, St Philip; as well as Bridgetown as areas where the special incentives under the act would be extended, in addition to Holetown and Hastings/Worthing as areas that have already been identified.
Sinckler proposed a special committee comprising of representatives from the Barbados Tourism Investment Inc; the Ministry of Finance and Economic Affairs; the Central Bank of Barbados; Barbados Chamber of Commerce and Industry; and the Private Sector Association of Barbados to review the initiative and report its findings within three months.
The Minister of Finance also announced the establishment of a “special fund” valued at $50 million for the small and medium-sized enterprises sector for the purpose of providing grants and loans.
At the same time, he announced a proposal for a quality incentive scheme, which would take the form of a reimbursable grant of up to $50,000; and a new regime for fiscal incentives for the local manufacturing sector.
Stating that the island was not making any money from the duty imposed on yachts visiting for more than six months, Sinckler said the duty would be replaced by an annual licence fee of $2,000 per boat.