EY applauds duty-free zones, questions banking tax
Ernst and Young (EY) Barbados, a firm specializing in assurance, tax, transactions and advisory services, has questioned whether Government has a strategy to address the country’s deteriorating fiscal situation.
In its assessment of the 2016 Financial Statement and Budgetary Presentation, EY said Barbados entered the 2016 Budget cycle against a continuing backdrop of one of the highest debt-to- Gross Domestic Product (GDP) ratios in the region – second only to Jamaica; widening fiscal deficits in the range of 7.4 per cent of GDP or $660 million; tightening foreign reserves and an increasing money supply.
EY highlighted and commented on several issues raised by Minister of Finance Chris Sinckler, including duty-free shopping; the Tourism Development Act; the Small Business Fund; National Health Insurance Fund; and the tax on banking assets.
Regarding duty-free shopping, Sinckler announced that a special committee would be established to review the creation of duty-free zones for both visitors and Barbadians, eliminating the need for residents to travel in order to shop.
Ernst and Young said this measure would likely expand local businesses and create jobs, which in turn could increase corporate and income tax revenue.
However, it questioned how Barbadians would be able to make these purchases and whether they would be able to use credit cards in US dollars and so use their annual foreign exchange travel limit.
Ernst and Young commended Government on the proposed incentives to approved tourism projects under the Tourism Development Act (TDA).
“More frequent access to the benefits of the TDA should allow approved tourism projects, especially small hotels, to make financial plans more easily in the absence of the former more strict time limitations on the TDA,” EY said.
“We expect that this will allow these projects to better manage their cash flows and may invite additional investment in the sector.
“However, until the terms of the amendments of the TDA, and the precise details of the interim administrative solution are clarified, it is difficult to know whether this will result in any real change to the sector,” Ernst and Young added.
On the proposed creation of a $50 million fund to strengthen growth in the small business sector, Ernst and Young said although this proposal is geared towards increased access to funding for micro, small and medium-sized enterprises, such access to funding had proven difficult in the past due to burdensome application requirements.
“Unless we streamline the process, this initiative will encounter the same problem,” EY said.
Meantime, the multinational professional services firm was not confident financial institutions would approve of the announced tax on banking assets.
Sinckler yesterday proposed to extend the previously expired Banks Asset Tax on the average domestic assets of a bank.
He also indicated that the rate of tax would rise from 0.2 per cent per annum to 0.35 per cent. The minister projected this would bring in an additional $33.3 million in revenue in the next full financial year.
Ernst and Young said it was concerned that financial institutions would pass the expense to consumers through fees and service charges.
“If this occurs, it might be counter-productive to the minister’s intent of encouraging the banks to pass on the benefits of the recent liberalization of the minimum savings rate. As consumers well know, while interest rates on savings have dropped to 0.25 per cent, interest rates on loans can be in double digits,” Ernst and Young said.