The IMF believes taxes on tourism are necessary

By Marlon Madden, Barbados Today

The island’s increasing crime rate has not gone unnoticed by the International Monetary Fund (IMF), with one top official insisting that it must be an area of priority for the Mia Mottley administration.

The man leading the IMF mission to Barbados Bert Van Selm, Deputy Division Chief for the Caribbean, said while the area of crime was not one of competence for the Washington-based institution, it was still an area he believed authorities must address effectively.

He explained that while he did not see it impacting the overall fiscal position of the country, it could have a negative bearing on the country’s main contributor to gross domestic product (GDP) – tourism.

Barbados records an average of 27 murders annually, but the number of people murdered for the first three months of this year alone reached an unprecedented 20.

“We do think about, with our counterparts and Governments, what this could mean for economic prospects. And while we don’t see any immediate impact on things like GDP growth or tax revenue or anything like that, we do think it is important to bear in mind Barbados’ business model,” said Van Selm.

“Traditionally Barbados has had a lot of high-end tourism that was premised on the fact that Barbados was and is still very safe. So my recommendation on this is to say that you absolutely need to maintain that if you want to maintain your business model as a good destination for tourism, also relative to others in the region,” he warned.

Van Selm also commented on the recent tax measures imposed on the tourism sector, telling Barbados TODAY he agreed with Government that they were necessary.

In addition to a range of levies on hotel room rates depending on the accommodation type, and a subsequent increase in those rates, the hotel sector is in line to pay an increase in Value Added Tax (VAT) from 7.5 per cent to 10, come January next year.

As a result of the four-year, US$290 million IMF-funded programme, travellers leaving Barbados on international trips have also been slapped with a new US$70 departure tax, while those travelling regionally pay US$35.

Van Selm told Barbados TODAY a country should not have its main industry “contributing next to nothing to tax credit”.

“The Government of Barbados feels strongly that in the past the burden-sharing between residents and nonresidents was not what it should be in the sense that the tourists, the visitors to the island, did not pay their fair share in contributing to the cost of running the island including in terms of the infrastructure,” he pointed out.

“So the Government came in with plans to redress that imbalance and we think that is right. But of course you don’t want to overtax tourism. On the other hand, tourism is the main industry on the island so it has to contribute to taxation, which would then also allow the Government to invest in infrastructure that is necessary to run the island,” he reasoned.

Recently, Prime Minister Mia Mottley also revealed that a new committee was now being established to review how concessions were being granted to the sector and determine what was to be considered “fair, decent and reasonable deals” for the hotel sector.

“So the initiatives that the Government put in place like the higher room rates and higher departure tax we think is a ‘go’ in the right direction. In the longer term you can think about using more common tax methods like Value Added Taxation and expanding the coverage of the VAT to tourism, but as an interim measure we think these are good steps,” said Van Selm.

Asked about the concerns from international organisations that Barbados was still considered one of the more than 180 major countries for money laundering and anti-tax policies, Van Selm said he saw that Government was taking the right steps to address those concerns.

He singled out the measures being put in place by the country to meet by June, some 40 standards set out by the Financial Action Task Force, as well as ongoing changes to legislation. These moves, he said, could help keep the island’s reputation intact.

“My view is that the main impact of them is in terms of your reputation as an international destination for investment. So what the Government of Barbados and others in the region need to do is stay ahead of the curve and avoid such situations,” he said.

The IMF official, who described the relationship between the institution and Government as “constructive”, said there was never a situation of critique but “fruitful cooperation”, adding that obtaining critical economic data from officials here has been “very good”.

“One positive trend we see is the setting up of the new BERT (Barbados Economic Recovery and Transformation) monitoring committee that is going to have good access to Government data and on that basis publish quarterly reports,” he said.

“We think this is very positive because a domestic form of monitoring like that can help enormously in getting by into the programme and giving people access to what the Government is actually trying to do and what it is doing,” he said.