Tax increase could threaten competitiveness

Five years ago, Government revamped Barbados’ corporate tax regime to meet compliance requirements of the Organisation for Economic Cooperation and Development (OECD). Last week, Prime Minister Mia Amor Mottley delivered a ministerial statement in the House of Assembly in which she announced another major round of reform for corporate tax, this time to comply with the OECD-led Global Minimum Tax, which is to come into force in 2024. BARBADOS BUSINESS AUTHORITY asked Caribbean economist Marla Dukharan about the proposed corporation tax reform and the implications of the changes.

What are your thoughts on this latest corporate tax revamp by Barbados, especially considering it is the second major revamp within five years?

Barbados appears on the European Union’s Anti-Money Laundering/ Combatting the Financing of Terrorism (AML/CFT) Blacklist, the United Kingdom’s AML/CFT Blacklist, and the FATF’s Grey list of countries under increased monitoring for AML/CFT.

Barbados also appears on the Netherlands’ Tax blacklist, but is listed as ‘largely compliant’ by the Organisation for Economic Cooperation and Development (OECD). It is interesting indeed that Barbados, which does not seem to have a tax compliance problem – except with The Netherlands, but I doubt there are significant practical implications of this – has moved so swiftly to reform its tax framework again, citing OECD Global Minimum Tax requirements.

This move strikes me as a bit odd, especially given the resolution passed at the United Nations (UN) in November 2022 for the UN to assume the role of global tax governance, thereby eliminating the role of the OECD in that space. As far as I am aware, this UN resolution effectively puts the OECD Global Minimum Tax on hold, in effect, and Global Minimum Tax compliance efforts now could be premature and/or misplaced.

Will this negatively impact the economic competitiveness of Barbados?

I think this increase in corporation tax could negatively affect Barbados’ competitiveness internationally, as the Prime Minister had indeed suggested. But beyond this, it could also therefore lead to a reduction in the amount of corporation tax collected by the Government unless these higher taxes are used to provide better services for the taxpayer, which they can see and feel.

Compliance with OECD/EU/Global Minimum Tax alone is not enough to convince a globally mobile taxpayer.

I am not aware of any country that has taxed itself into greatness – not unless this tax revenue is used to provide a commensurate ease of doing business and also, a productive workforce. Barbados is already the highest taxed jurisdiction in the Caribbean and Latin America apart from Brazil according to OECD data. Barbados has more loss making state owned enterprises per capita than Cuba.

These loss making state owned enterprises are funded by taxpayers. Do these entities provide value for money, for the taxpayer? If yes, they will stay. If no, those who can, may be inclined to leave.

Another issue I want to address is the regressiveness of the taxation regime as a whole in Barbados – not just the corporation tax – meaning that those at higher income levels pay a smaller portion of their income in taxes, than those who earn less. At nine per cent or less, corporations pay less tax on their profits than individuals do on their incomes in Barbados.

Individuals earning over $50 000 or $500 000 or $1 million, pay the same rate of income tax of 28.5 per cent – this is regressive and therefore pro-poverty. Also, Barbados has the highest value added tax rate in the Caribbean at 17.5 per cent. And finally, though we claim to be going digital in Barbados and encouraging businesses and individuals to do more business online, we tax mobile services at 22 per cent – again, the highest in the Caribbean.

What are your views on the global minimum tax being implemented in 2024?

On the Global Minimum Tax – I believe the resolution passed at the UN will throw this one out and replace it with something more equitable, transparent and inclusive.

The Organisation for Economic Cooperation and Development is overseeing the implementation of

a Global Minimum Tax. (FP)

Caribbean economist, Marla Dukharan (FP)