WE ARE IN COUNTDOWN MODE now for the big day, January 1, regarding companies currently registered for VAT. Unless Mr Sinckler changes his mind, that is the day when a couple of thousand companies now registered will no longer be be eligible to claim back VAT. They will be purged from the rolls.
Citing some numbers from an IMF report, Mr Sinckler said in his Budget Speech last June that “effective January 1, 2016, the VAT registration threshold requirement will be increased from the current level of $80 000 (in annual turnover) to $200 000.”
Any revenue gained from having the current low threshold was lost, he said, by the cost of having to “contend with a plethora of small registrants and the VAT refunds which many are forced to claim on the input VAT.”
Better to use the VAT officers to cover the larger businesses which collect most of the VAT revenues anyway, he said.
The measures dealing with VAT came out of a report prepared for Barbados by an IMF consultant, and only a few were announced. Of course, if you say IMF and VAT in the same sentence you can immediately imagine words in between like “abolish all exemptions,” “making zero-rating history,” and “put VAT back on tourism” – and this report was roughly like that.
But what Mr Sinckler did implement – along with a major shrinkage in the VAT-free basket of goods already in place – will still be far-reaching.
The IMF recommendation, found in Tax Reform Roadmap For Simplicity And Revenue Buoyancy, prepared in August 2014 by the IMF for Barbados, was for a $300 000 annual revenue threshold. The IMF report noted that 3 140 registrants “with turnover between zero and $300 000 account for only 3.8 per cent of the total VAT paid.”
With VAT receipts totalling $886 million for fiscal 2014-15, that works out to around $35 million. But wait, here’s the kicker: those 3 140 registrants account for “over half” of all VAT registrants. Over half.
That means the remaining VAT registrants, that is, those with $1 million or more in annual revenues – paid in $850 million in VAT to the taxman last year. I don’t know what the numbers are at the $200 000 threshold, but they must be enough to reduce the VAT officers’ workload significantly.
The coming cutback in the number of VAT registrants echoes the “simplification” in the Government’s personal income tax threshold for this income year, 2015, designed to achieve similar work reduction for the Barbados Revenue Authority officers.
Two years ago, over 90 000 tax returns were filed, and two-thirds of them claimed tax returns due, requiring extra human resources to carry out the auditing required.
Therefore, said Mr Sinckler, with effect from Income Tax Year 2015, besides with the existing personal allowances, the only other deductions allowed will be contributions to trade unions and statutory associations, donations to charities including the church, and energy audit retrofits.
To help taxpayers a bit, he said, the current tax rate of 17.5 per cent would be reduced to 16 per cent and the higher rate of 35 per cent to 33.5 per cent.
The good news for the Barbados Revenue Authority would be that instead of 60 000 people claiming refunds, only 24 000 would from this year, and it would only cost Government about $9 million.
The reason, according to Ernst & Young, is that a person earning $75 000 per year would pay just over $3 000 more in taxes, because up to $16 750 in deductions were just swept away. These include the $10 000 formerly allowed for “home improvement,” the $3 500 for “Superannuation Fund contributions” and the $3 250 in Registered Retirement Savings Plan contributions.
That last one is expected to negatively affect our pension savings. In the case of VAT, the small businesses affected will try to put up their prices to cope, or also accept reduced margins, and perhaps profits as well.
Patrick Hoyos is a journalist and publisher specialising in business. Email [email protected]
