Current 17.5% VAT killing tourism
When Government announced last year that it was passing a bill to allow the lowering of Value Added Tax (VAT) to 7.5 per cent for qualifying hospitality partners my initial thought that it was a wonderful opportunity to at least partially address the frequently quoted high costs of our tourism product.
The criteria did not appear too ominous. That the entity had to be registered with or a license from the Barbados Tourism Authority, Barbados Hotel and Tourism Association or Small Hotels of Barbados Inc, it was in compliance with all statutory obligations of the Income Tax, NIS and Social Securities Act and was able to demonstrate to the satisfaction of the Comptroller and generates at least 75 per cent of total earnings annually in a foreign currency.
In our 26 year experience the vast majority of guests pay via credit card, I would not have thought this was difficult to verify. These imposed conditions would seem quite reasonable and for most attainable.
Why then have so few seemingly eligible tourism partners registered successfully and applied the lower rate of VAT? After all, 10 per cent of the final cost to the consumer is not an insubstantial reduction. Looking at menus posted on the websites of many of our hotels with in-house restaurants or stand alone establishments 17.5 per cent VAT is still shown, which includes some of the big names and (unless they have yet to be updated) state owned accommodation providers are included in this. Interestingly, this applies even to businesses where their owners or managers sit on the board of the national marketing authority.
So what has gone wrong? Is this once again a case of implementation deficit?
Originally the measure was announced in the 2013 budget submission, so does it really take so long to process registration applications?
Minister of Finance Sinckler stated during that presentation, the concession would cost the Treasury $9 million annually across the entire sector, or roughly the same amount that Sandals Barbados would avoid in VAT payment for the same period when re-opened. You only have to go onto the Barbados Forum section of TripAdvisor to quickly gauge that price or what is perceived by many of our visitors, is less than value-for-money is one, if not the most discussed topic.
As we enter the long eight-month softer summer season, the cost of our tourism offerings is going to become even more critical to final destination choice. Certainly the current high value of Sterling against the Barbados Dollar, reaching within 3 cents of a four year high recently is helping make us more attractive to the ‘Brits’. But this also applies to many other holiday offerings around the world.
While welcome, the benefits from the amendment to the distance band of the APD (Advanced Passenger Duty) will not have any meaningful effect until almost a year from now. And this will be largely diminished during the next twelve months after British Airways decision to hike many Caribbean airfares by GBPounds 10 per ticket with immediate effect with Virgin Atlantic expected to follow.