Impact Of Budget 2017 On The Tourism Sector

The following statement included in the financial statement made by Minister Sinckler, summarised the state of the tourism sector and provided the rationale for not changing the VAT rate. “We also felt that a rushed standardisation of the VAT rate across all vatable supplies including hotel accommodation, and direct tourism services as recommended by some […]

By Roseanne Myers

June 2, 2017

The following statement included in the financial statement made by Minister Sinckler, summarised the state of the tourism sector and provided the rationale for not changing the VAT rate.

“We also felt that a rushed standardisation of the VAT rate across all vatable supplies including hotel accommodation, and direct tourism services as recommended by some private sector groups, would likely cause short-term harm to the tourism sector at a time when the sector was struggling with negative effects of the reduced value of the pound, our most lucrative source market, as well as price competitiveness issues associated with the rising value of the US dollar.”

We are appreciative of the attempt to protect the sector from increased costs and no increase in VAT rate of 7.5 % for accommodation and the small percentage of Direct Tourism Services that can access it, is a welcomed initiative. We need to implement the legislation promised three budgets ago that saw DTS intended to benefit from that rate to ensure the objective of that proposal is still met.

However, all of the other taxes imposed will have the effect of increasing the cost of doing business in the tourism sector and Barbados and decreasing our competitiveness as early as June or July.

  1. National Social Responsibility Levy increasing from 2% to 10%, will increase the costs of buying locally produced goods and imported goods significantly. Only those properties approved for duty exemptions are exempt from this tax but it requires clarification as properties with duty-free are still being charged the levy and on very high ticket items. The fact that it is not stated as a separate line item makes it difficult to track on some local invoices. Having not received the full slate of promised concessions on Food and Beverage and for those other accommodation properties and DTS not granted duty-free status we must pay duty on the goods, add 10% NSRL and add the 17.5% VAT on top of that.  Potentially
  2. The 2% commission is to be charged for ForEx purchases (wire, drafts, credit cards, counter sales) is seen as providing a deterrent to spending foreign exchange but for an industry that is not able yet to buy all the inputs locally, it becomes a disincentive for doing business. The 2% charged on foreign exchange payments will be another expense for all companies and will in turn increase not only goods but services.  There are some companies that do not have foreign currency accounts and therefore in-order to do business will have to incur the additional expense. All capital works requiring imports will be increased by 2%.
  3. Excise tax on gas and diesel increases by 25 cents so we have to consider the impact on the transportation sector coach transfers rates including taxis. However while the price of diesel and gas remains depressed the impact perhaps can be managed but as it climbs we will have to monitor closely.
  4. The bigger question is what is the cumulative effect of the new taxes on the sector? Will we see a contraction in spending? Will this budget stimulate economic activity in the tourism sector that is seeking to drive economic growth and will it increase foreign exchange earnings? Contracting having been completed for next year and rates already in market, any cost increases will need to be absorbed by businesses already discounting in the summer to bolster occupancy. Will these initiatives make the tourism sector more competitive in the short or medium term? Uncertainty in our markets continue especially as we near UK elections and the mandate by PM May’s party seems narrower than expected causing a drop in the pound today. We have to ensure that while we share in the pain of what is being attempted in a single year to close the deficit does not hurt our chances at keeping the industry growing and producing hard currency. The BHTA will need to embark soonest on an analysis of the impacts after clarification on some of the measures and a survey of its membership.
  5. Sale of Hilton will bring uncertainty in the short-term also as there are several questions? Will it remain a Hilton for example? We need to ensure that if the answer is clearly yes that we signal this early to the travel trade and consumers so there is some degree of comfort. The sale should net foreign exchange which is greatly needed to pay foreign debt in the short-term but in the longer term , the proceeds will need to be repatriated if 100% foreign owner. We highly encourage the opportunity for purchase by investors including local entities in a transparent fashion as has been indicated through open bids. The banking sector assures us that borrowing in foreign currency is possible and further whether sale to a foreign or local, the possibility of carving out 10 to 30 % for smaller local investors to have some level of ownership could be very positive in the long run. Shares at a level that allows industry workers to become shareholders in a post independent Barbados would be progress perhaps signaling the maturity of the tourism sector and destination and progressive thinking if the maths can be worked out and the instruments. This may perhaps be a pipe dream given the opportunity presented by liquidity in the banking system and an excellent and well-loved tourism entity like the Hilton.

Possible positive impacts but further details required on the fact that Government is exploring VAT refund factoring programme. The one established for the Small Business Sector by the Central Bank is not working so we already know what not to do.

The BHTA has been seeking a creative way to assist members in accessing VAT refunds and the opportunity to dialogue with BRA, Central bank and financial institutions to be able to inject needed cash flow in an industry still struggling to be the engine of growth, is welcomed. Solutions may not be easy but we must explore all options.

​Positive approach to dealing with the issue of implementation​ of the below is also welcomed but these efforts need to be rolled out quickly.  How these will be rolled out requires further information but the following were of interest particularly to tourism.

  1. Boosting foreign exchange earnings through creating even more attractive conditions of foreign direct investment by the standardisation of investment incentive regimes in an omnibus incentives legislation and reforming the platform for implementing mechanisms across the public and private sectors;

    A very complex sentence but there is no question that we need a clear and transparent and equitable approach to incentivize local and foreign investors. It must be clearly understood and wrapped in implementation garments upfront.

  1. Productive sector reform focusing on reducing the cost of doing business in critical sectors such as agriculture, manufacturing and tourism, finding appropriate mechanisms to capitalize emerging sectors such as cultural industries;

    Another welcomed initiative in a financial statement that has heaped additional costs on the same sectors, while expecting tourism to continue to pay the bills.

  1. Instituting a Competitiveness Commission and Operational Unit to drive implementation of the work currently being undertaken by the tripartite Competitiveness Action Teams (CAT) which are focused on improving output and efficiencies in the following areas:
    • The Grantley Adams International Airport;
    • The Bridgetown Seaport;
    • The Legal System in the Offices of the Chief Parliamentary Counsel (CPC) and the Solicitor General (SG);
    • Registration of Properties;
    • The Court System;
    • Physical planning permission – Town and Country Development Planning Office; and
    • Tax Efficiency – with respect to the Barbados Revenue Authority (BRA) and the Customs Department.

    The BHTA fully supports the above but we must change language and inject the concept of an implementation and not operational unit as it sets the wrong expectation. We are at this juncture seeking results and not activity. Operational units reminds of looking busy versus a strategic approach bound by timelines to put action behind the talk and deliver results that are reportable and measurable. We have not done this in the past.

  1. Implementation of the new national energy policy to accelerate the government’s plan to make Barbados energy independent by 2035 based on the extensive use of alternative energy while saving the country millions in foreign exchange;

    A discussion and plan we must roll out soonest.

  2. Social sector reform in critical areas such as health, education, sanitation, social care services and environmental protection. Environmental protection is required if our tourism sector is to be sustainable.

    We are aware of pending legislation re marine management areas and it is critical that we fast track these and other requirements.

Roseanne Myers

Roseanne Myers is the General Manager of Atlantis Submarines Barbados, and Chairman of the Barbados Hotel and Tourism Association. She has over 32 years management experience in the manufacturing and tourism sectors. She holds a BSc. (Hons) degree in Chemistry and Biochemistry and a MSc. in Tourism and Hospitality (Dist)