VAT continues to be a big earner for Barbados government
Value Added Tax receipts for Barbados reached eight-year high for the 2011-2012 income year.
BRIDGETOWN, Barbados, Thursday July 12, 2012 – While other Caribbean countries grapple with internal conflicts over whether or not to implement Value Added Tax (VAT) regimes, the Barbados government reaped almost a billion Barbados dollars in VAT receipts last year.
According to the economic review of the first six months of 2012 released by the Central Bank of Barbados on Monday, provisional estimates for the 2011-2012 fiscal year are that VAT brought in BDS$949.6 million dollars into the Treasury. On a whole, VAT contributed BDS$764.8 million of the BDS$1.2 billion in indirect taxes taken in by government last year.
And, despite the still precarious economic status of the island, it appears on track to add even more revenue to government’s coffers this year as the central bank is reporting that an estimated BDS$243.9 million in VAT receipts has been taken in up to June this year versus BDS$227.8 million over the same period in 2011.
In fact, VAT receipts have been credited for giving the entire government revenue a much needed bump.
“Government’s total revenue is projected to have improved by 3.4 percent, compared to the same period last year, primarily owing to a 7 percent increase in VAT receipts. On the other hand, personal tax collections were down by 5 percent, while corporate tax receipts fell by 4 percent. Expenditure on interest payments grew by 5 percent and pensions and other transfers to individuals and to public corporations rose by 20 percent and 12 percent, respectively,” stated the central bank report.
This gain in VAT revenues prompted the Barbados government to retain its 2.5% increase on the VAT rate implemented almost two years ago until further notice according to Minister of Finance Christopher Sinckler in his recent national budget presentation.
However, the Barbados economic picture is not looking as rosy on all fronts.
The economic review reported that real growth in the first half of this year was estimated at only 0.6 percent.
Also, Barbados foreign exchange reserves at the end of June stood at $1,357 million, marking a decline of $63 million since December 2011.
The central bank attributed this to the fact that the international recession has slowed the inflows of foreign exchange to Barbados, and has therefore limited the prospects for growth in an economy which needs foreign exchange in order to register sustainable growth.
Output in the tourism sector is estimated to have risen 1.8 percent in the first half of the year. The largest increase came from the CARICOM area, particularly Trinidad and Tobago, where arrivals grew by 35 percent, according to the report.
The once booming construction industry appears to be staging a moderate revival, growing by a reported 1.3 percent due to private commercial building activity, the continuation of tourism-related projects, and public sector capital projects.
The number of active companies in the international business and financial services sector increased by 3 percent, stated the report.
Inflation appears to have decelerated slightly, with the projected 12-month average rate to June at about 8.6 percent, compared to 9.5 percent in December. Inflation in the prices of food and fuel appears to have abated, since the last quarter of 2011.
Unemployment continued to inch up as, in addition to the job loss in tourism, there was also some retrenchment in the manufacturing sector and non-sugar agriculture, resulting in an unemployment rate estimated at 11.8 percent at the end of March 2012, compared with an average of 11.2 percent for all of 2011.
The fiscal deficit was estimated at 5.1 percent of GDP for the first three months of the 2012/13 fiscal year. All of Government’s deficit financing was sourced from the domestic market. The deficit was financed to the extent of 75 percent by commercial banks, 48 percent by the National Insurance Scheme (NIS) and 54 percent by private non-bank entities, stated the report.
There were no foreign public inflows during the review period and payments on external loans reduced government indebtedness by $33 million. Gross government debt as a percentage of GDP was 77 percent, down from 79 percent at the end of 2011, while net government debt was 57 percent of GDP. External debt service accounted for less than 7 percent of current account earnings, revealed the central bank.
Evaluating the island’s economic prospects, the central bank acknowledged that the global environment continues to constrain prospects for a vigorous economic recovery, as the poor economic performances of the UK and the USA continue to depress the demand for Barbados’ tourism services.
However, it projected that modest gains are expected from the gradual improvement in length-of-stay. Private investments in tourism-related projects and corporate building activity are anticipated to further expand construction output for the remainder of 2012. However, foreign exchange sectors are not projected to grow significantly in 2012.
Limited expansion is therefore likely in the non-tradable sectors. Overall growth is forecasted to be in the region of one percent in 2012. No significant employment gains are expected, stated the monetary authority.