It’s a backward step, says economist

An economist is questioning the amount of money the Government is likely to raise from the four per cent increase in Value Added Tax (VAT) on voice and other transmission from cell phones.

President of the Barbados Economic Society (BAS) Jeremy Stephen has also taken issue with the definition which was given by Minister of Finance Chris Sinckler for mobile airtime, saying once data was included, it could impact negatively on small businesses, while forcing individuals, especially prepaid mobile customers, to spend less.

By increasing the VAT on cell phone use from 17.5 per cent to 22 per cent, through amendments to the VAT Act, the Barbados Government is hoping to raise $14 million annually, which it said would be used to help fund university scholarships.

Earlier this week Sinckler explained that contrary to what people initially believed, the imposition would not only affect cell phone calls, but all mobile transmitting services.

“In the definition that was provided, mobile airtime was taken to mean all services conducted across the bandwidth on the usage of cellular phone,” informed Sinckler.

However, Stephen said that definition, which “seemingly changed” since the initial announcement of the tax, had “really taken a lot of people by surprise”.

Though making it clear that he supported any move to tax mobile talk time, Stephen expressed the view that data usage should not be taxed, describing the decision as “a backward step”.

And he questioned whether or not the Government had carried out careful research, including the price sensitivity of the market when it came to mobile data services in particular, before imposing the tax.

Jeremy Stephen
Jeremy Stephen

“I don’t think, at least in the interim, that the tax will have yield what they think it would have,” said Stephen, pointing out that “a lot of people out there use Wi-Fi on their mobile devices”.

“The analysis that went behind it was not robust enough and maybe they did not divulge what the worse case scenarios they projected were. But what was presented to the public was a rather simple analysis that assumed that the people would purchase the same amount of minutes and data as they always did.

“It leads me to believe that the Government sees these services as luxury, meaning no matter how much we charge people will still purchase the same amount as before, which is salacious, particularly given how people use their mobile devices nowadays”.

The economist said based on his own preliminary research he had been led to believe that although the increase could be considered marginal, “it will have an impact on small businesses, particularly those that depend very heavily on marketing using social media”.

“A lot of them do depend heavily on real time access to consumers. So even if an adjustment is made, I think people will react strongly because of the sudden change in definition to what will be included in the calculation of VAT for the airtime minutes,” said Stephen.

“This is where it gets even more interesting. Given now that bundled data cost the same per gigabyte no matter how much you buy . . . if you have majority of the persons in the one gigabyte band then it means they must be price sensitive,” he said.

“And on that ground I believe that there wouldn’t be a great uptake in VAT. They might get a small marginal increase, [but] it depends very heavily on corporate accounts. But when it comes to small business customers I can expect that there will be a cut back,” argued Stephen.

Emphasizing the negative impact of including data in the VAT increase, Stephen said it could also impact negatively on the island’s bread and butter tourism industry.

“With the tourism industry we need to ensure that customers or tourists have access to data while they are here and it is not expensive for them to access data, especially when they are touring the country . . . . People do compare our cost of data already to what they get at home and we are rather expensive to begin with, so I think it is a step backward if data is included,” said Stephen.

Additionally, he said any tax on mobile data usage would only “slow down the pace of innovation and make the country less competitive”, pointing out that there was no developed country that would tax such a service.

“And you know the Minister [of Finance] say we live in an American economy with Scandinavian benefits and therefore the need to have a very ardent taxation policy . . . but here is where the problem in definition is, because there is no Scandinavian country that would tax data,” added Stephen.

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