The Barbados Chamber of Commerce & Industry (BCCI) is hopeful that government will achieve its fiscal deficit target by June next year so that it could lower the 17.5 per cent value added tax (VAT) back to 15 per cent.
In 2010 Minister of Finance Chris Sinckler increased the VAT rate from 15 per cent to 17.5 per cent effective December 1. He said that increase was intended as a temporary measure for the next 18 months.
Sinckler further proposed to review the increase at the end of this period with a view to providing relief subject to progress in reducing the fiscal deficit. According to the Minister of Finance the measure was expected to raise an additional $124 million.
BCCI president Andy Armstrong told BARBADOS BUSINESS AUTHORITY that it was critical for the private sector and ordinary Barbadians that Government lower its fiscal deficit and thereby revert the VAT to 15 per cent as this would encourage more spending.
“We heard the Central Bank of Barbados at the start of the year predicting between two and 2.5 per cent growth in the economy and now they are saying maybe about 0.8 per cent.
“That certainly created a lot of problems, particularly for Government, because it would have based a lot of its fiscal adjustments on the assumption that growth would [be] at least two per cent,” Armstrong noted.
According to the BCCI boss, “When the [deficit] was much lower, Government would have taken in less revenue than they expected. So that means it will take a little longer to close the fiscal deficit than they expected,” noted Armstrong.
“If Government can achieve its target for reducing the fiscal deficit by the time the 18 months is expired . . . . and reduce the VAT back to 15 per cent, we certainly hope that they would be in a position to do so. We believe this would help to stimulate the economy,” he added.
Armstrong said looking back at 2011, the two sectors that he had predicted would do well – tourism and construction – did not do as well as he had initially hoped. Describing this year as a challenging one, the businessman said there had been “very little recovery” for some businesses but “nothing like we hoped would have happened”.