Tax News Flash
BARBADOS
November 22, 2010
Highlights of the 2010 Barbados Budget
What’s Inside
Highlights of the 2010 Barbados Budget
Brief Overview
The Honourable Christopher Sinckler, Minister of Finance and Economic Affairs,
delivered his first budget of the Government of Barbados on Monday,
November 22, 2010.
Personal Tax Changes
VAT Changes
Other Tax Changes
Against the backdrop of the continuation of a domestic economic recession, almost
exclusively driven by the ravages of a global financial and economic crisis, the
budget proposes major adjustments in the taxation system and contains some
measures aimed at maintaining jobs and meeting some basic social needs, such as
housing.
The Minister referred to Barbados’ post-colonial development characterised by
positive economic growth and an unmatched array of social services and, which
owed its success on a reliance on a dominant sector economic model of
development based on foreign markets. However, the Minister indicated that this
model was limited in scope, highly susceptible to external shock and largely
unresponsive and inflexible to the ravages of deep seismic shifts in global political
and economic phenomena.
This view was supported by the Commonwealth Secretariat and the World Bank
which concluded that the Barbados economy was one of the most dependent on
the global economy and thus highly vulnerable economically.
Economic Overview
The fiscal deficit, for the period 2009/2010, was estimated at $712.9 million or 8.6%
of GDP compared to fiscal year 2008/2009 which was 396.9 million or 4.8% of GDP.
Preliminary information indicates that current revenue for the fiscal period
2009/2010 was $2,295.9 million, a decrease of $325.9 million or 12.4% from the
amount recorded for the corresponding fiscal period 2008/2009 which was 441.6
million below the original projection for 2009/2010.
For the period April to October 2010 the total current revenue was $62.8 million less
than the similar period in 2009 while, for the same period, total current expenditure
rose by $173.5 million over the corresponding period in 2009, resulting in an
increase in the fiscal deficit by $236.3 million. The fiscal deficit for the period stood
at 5.2% of GDP.
@2010 KPMG, a Barbados partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”) a Swiss entity.
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Tax News Flash – Budget Special
Economic Outlook
The Minister indicated that the outlook for the economy was predicated on the pace
of recovery of the global economy. Current projections suggest that in 2010, the
Barbadian economy is likely to register a marginal decline of 0.5% driven largely by
an anticipated marginal improvement in the performance in both the traded and nontraded sectors. The Minister said that even with declining levels of revenue,
government was still expected to provide almost full support to some critical
services namely the Queen Elizabeth Hospital, the Barbados Transport Board and
the University of the West Indies.
On the current pace and with these and other major expenditure commitments for
wages and salaries and debt services payments, government will have to continue
borrowing significant amounts to meet its obligations. The result is that the debt to
GDP-ratio now stands at 110% surpassing the accepted international average of
approximately 60%.
Highlights of tax changes announced in the budget are summarized below:
Personal Tax Changes
Measure - elimination of allowances for travelling and entertainment for employees
commencing in the current income year - Expected revenue $25 million.
Comment – Employees will now only be able to claim for actual expenditures laid
out to earn assessable income. This measure strikes directly at individuals
employed in the private sector and already in the tax net and who may have made
financial commitments this year. Maximum additional taxes per employee $5,250
(15,000 x 35%) This is likely to have little impact on expatriate employees in the
international financial services sector.
Measure - elimination of the tax free allowances for savings with credit unions,
effective income year 2011 – Expected revenue $9 million.
Comment – This removes a maximum allowance of $3,000 annually and will have
an impact on the income of credit unions. Maximum additional taxes per individual
$1,050. It is not clear whether this measure also eliminates the maximum $10,000
investment in shares in Credit Unions.
Value Added Tax Changes
Measure - increase in standard rate from 15% to 17.5% with effect from December
1, 2010 for 18 months. Review at November 30, 2011 aimed at providing relief if
progress is made in reducing fiscal deficit - Expected revenue $124 million.
Comment – The projection is based on similar levels of taxable activity. Thus the
key is to maintain or increase economic activity. It is noteworthy that
@2010 KPMG, a Barbados partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”) a Swiss entity.
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Tax News Flash – Budget Special
accommodation has remained at 7.5%.
Other Tax Changes

Excise Tax on Gasoline will increase by 50% effective Dec 1st, 2010 - Expected
revenue $22.7 million.

Increase in fees charged for services by the immigration department effective
Dec 1st, 2010 – Expected revenue $4 million.

Dispensing fee increase for prescriptions filled in private pharmacies, effective
April 1st, 2011 – Expected revenue $11 million.

An increase in bus fares by $0.50 per ride, effective January 1st, 2011 –
Expected revenue $8.4 million.

Environmental Levy will be abolished effective Dec1st 2010 – Expected loss $42
million.

A performance based fee reduction for mini-buses from $7,250 to $3,625 and
for route taxis from $4,500 to $2,250, effective April 1st, 2011 - Expected loss
$1.2 million.

PSV Drivers must pay a flat license renewal fee reduced from $230 to $80 –
Expected loss $185,000.

Retail Liquor Licenses have been halved from $1,000 to $500 effective
immediately – Expected loss unclear.

The Barbados Tourism Authority new marketing program at an Expected Cost of
$6 million.

A small hotel refurbishment program through the Small Hotels Fund (SHIF) Expected cost $20 million to be administered by the Enterprise Growth Fund.

Establishment of a Tourism Loan Guarantee Facility to provide working capital
support to hotels by January 2011 - Expected Cost $100 million.

The allocation of additional resources to Invest Barbados for marketing purposes
in the fiscal year 2011.

Assist Invest Barbados in appointing a marketing representative in Mexico in
order to develop opportunities in Mexico and Latin America.

Farmers can apply to BWA for a flat commercial rate effective January 1st, 2011
– Expected Cost $5.7 million.
@2010 KPMG, a Barbados partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”) a Swiss entity.
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Tax News Flash – Budget Special

BIDC to obtain a US $50 million loan to assist with plan upgrade, technological
advancements as well as some working capital to improve general production
capacity.

Introduction of a Cultural Industries Development Bill to extend income tax and
customs duty concessions to individuals, groups and companies operating in,
investing in or making philanthropic contributions to the sector. Concessions
include expenditure on marketing, research, product development & training,
film & motion picture development.

Audit Threshold will be increased this year from $1million to $2 million affecting
companies with year ends after December 31st, 2010. This threshold will be
increased to $4 million in 2014 for companies with year ends after December
31st, 2013.
In aggregate these tax measures are expected to generate in excess of $175
million in tax revenue for the Government of Barbados. However, it appears
that no attempt has been made to enhance compliance by non-taxpayers e.g.
extending requirements for tax clearance certificates in certain business
undertakings.
Proposed Tax Credits
Employment Incentive
A tax credit will be granted equal to 10% of the cost of wages to any firm to be
applied against taxes payable. This will be applicable to any business organization
which over the next three years beginning income year 2011, is able to increase its
profits and at the same time increase employment by at least 10% of its work force.
The increased employment must be maintained for 3 years in order to obtain the tax
credit. The firm will be able to carry forward the credit for 3 years if it does not have
the taxable income to utilize the credit in the year the expenditure is incurred.
Comment – Further clarification is necessary.
Innovation Incentive
A Productivity and Innovation Tax Credit of 25% of expenditure in the year incurred
to be applied against taxable income and where there is a loss, the qualifying
business would be allowed to carry forward the credit to subsequent years for up to
a three year period. To be eligible, the company must place emphasis on investment
in the following areas: Process Innovation, Product Innovation, Organisational
Innovation and Service Innovation. The company must demonstrate that innovation
was successfully introduced into the market thereby creating commercial value.
Comment – No date was given for commencement.
@2010 KPMG, a Barbados partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”) a Swiss entity.
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Tax News Flash – Budget Special
Education
To target the approximately 10% of the primary school population who experience
serious challenges in procuring the requisite texts and workbooks. Government is
proposing to make available to the Ministry of Education a sum of $500,000 to cater
to this group.
Small and Micro Business
A sum of $1.5 million will be allocated to Fund Access to empower it to facilitate the
needs of the small business sector through additional technical assistance for
existing and new businesses, training and working capital.
Waivers of Penalties and Interest
A program has already been introduced to allow a waiver of 50% of the total interest
and penalty owed by employers and self-employed persons, entering into an
agreement with the relevant Government entities and the arrears being settled
within the agreed period. This has been extended for another year effective Dec 1,
2010 in respect of National Insurance, Land Tax and Value Added Tax.
We can help
Contact us
Wayne Lovell
(246) 434-3928
[email protected]
Marianne Greenidge
(246) 434- 3918
[email protected]
Your KPMG adviser can help you assess the effect of the tax changes in this year’s
budget on your personal finances or business affairs, and point out ways to take
advantage of their benefits or lesson their impact. We can also keep you abreast of
the progress of these proposals as they make their way into law and help you bring
any concerns you may have to the attention of the Ministry of Finance.
Information is current to November 22, 2010. The information contained in this document is of a general
nature and is not intended to address the circumstances of any particular individual or entity. Although we
endeavour to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act
Juan Wright
(246) 434- 3913
[email protected]
upon such information without appropriate professional advice after a thorough examination of the
particular situation.
KPMG, a Barbados partnership, is the Barbados member firm of KPMG, a global network of professional
firms providing Audit, Tax, and Advisory services. We operate in 144 countries and have more than
104,000 professionals working in member firms around the world.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss
cooperative. KPMG International provides no client services.
The KPMG Barbados Web site is located at www.kpmg.bb.
@2010 KPMG, a Barbados partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”) a Swiss entity.
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