THE introduction of the Value Added Tax in Barbados in 1997 did not materially alter this country’s tax structure, given that the proportions of direct and indirect taxes to total revenue remained over the period 1998 to 2011.
This is one of the conclusions drawn by Dr. Delilse Worrell, the Governor of the Central Bank of Barbados, and a team of Economists in an assessment of the VAT. Recently the Governor took issue with some aspects of the VAT, and ever since then debate has been raging about the tax first introduced in 1997.
The joint paper by the Economists Tracy Maynard, Chrystol Thomas and Michelle-Doyle Lowe, compares the yield of the VAT in Barbados with that of the preceding tax regime of consumption taxes.
VAT was introduced at a standard rate of 15 per cent, replacing an indirect tax structure that consisted 11 indirect taxes: consumption tax, an import surcharge, a hotel and restaurant sales tax, a travel ticket tax, an entertainment tax, a tax on quarriable minerals, a surcharge on overseas telephone calls, a surcharge on residential rents, a service tax on pleasure cruises, a stamp duty on imports and an airline business tax. A concessional rate of 7.5 per cent was applied on accommodation in hotels, guest houses and inns, and a number of zero-rated and exempted items.
The VAT rate remained in place until November 2010 when it was raised to 17.5 per cent, the concessional rate was increased to 8.75 per cent and the VAT threshold was revised to $80 000 from
$60 000. They said that prior to VAT, consumption duties accounted for about 39 per cent of indirect tax revenues, on average. Import duties and stamp duties, they explained, were the other major categories, comprising approximately 26 per cent and 14 per cent of indirect taxes, respectively.
“After 1997, VAT receipts contributed 56 per cent of indirect tax revenue, with import duties and excises accounting for 15.8 per cent and 1.5 per cent respectively,” they said.
“Within the category of indirect taxes, the three largest items (consumption tax, VAT and import duties) accounted for over 80 per cent of collections, for both the pre- and post- VAT period,” said the authors to the.
“The burden of indirect tax increased with the imposition of the VAT from an average of 6.4 per cent of gross domestic product to an average of 8.4 per cent,” the Economists explained.
They noted that there was some gain in revenue yield relative to the tax rate, with the establishment of the VAT.
According to them, “Notably, the administrative costs of collecting VAT were higher relative to the revenue received, than for the taxes replaced.”
The Economists explained that the administrative of the Customs and Exercise Department averaged 1.9 per cent of collections between 1982/1983 to 1996/1997, following the establishment of the VAT Division.
“The collection costs incurred by the Inland Revenue Department have remained relatively unchanged at one per cent and that by the Land Tax Department averaged five per cent,” said the Economists.
The indirect tax system has also been less elastic and less buoyant in response to changes in income, since the VAT was created, compared with estimates for the pre-VAT period.”