On-Line Taxation for Barbados

axim -taxationOn June 11th, 2018 the Prime Minister of Barbados stated as follows: “I announce the intention of my Government that effective October 1st, 2018 we intend to make all online transactions for the purchase of goods and services by Barbadian residents subject to the Value Added Tax. The Barbados Government has announced the taxation of online transactions.” This date has subsequently been shifted to December 15, 2018 and then to April 2019.

It comes as no surprise that this initiative comes hand in glove with the OECD Base Erosion and Profit Shifting (BEPS) initiative. In March 2017, the G20 Finance Ministers mandated the OECD, through the Inclusive Framework on BEPS, to deliver an interim report on the implications of digitalisation for taxation by April 2018. It is however the case that what suits the rich countries of the world does not necessarily suit developing countries like Barbados which have an underdeveloped innovation and entrepreneurial base.

The reality of Barbados is that many have turned to sourcing products on line because often they were unavailable, the choices were poor and the mark –ups were exceptionally high. In addition Barbados against all the odds has established a cadre of small businesses which use websites, Facebook and other social media as a means of getting their products noticed. The high cost of advertising in the traditional media would have meant that these small businesses would not have existed or would be far less successful.

The Creative Economy which is seen as a new growth sector for Barbados and which has been appropriated in the name of the Ministry responsible for Culture is highly dependent upon information technology and the digital economy for its success. Developed countries do not tax anything before it can run successfully, so while this might suit them with the advent of power houses such as Microsoft, Apple, Amazon, Facebook, Twitter and Reddit. Barbados is not there as yet. The Creative Economy has experienced a boom in many countries because of the ability to sell a range of cultural and creative products online.

VAT is a tax on consumers and is meant to pass through businesses unless of course the business is the final consumer. Exports are usually exempt from VAT. Imports are usually subject to VAT at the official ports of entry. Thus online purchases will be captured at the ports. We have heard that if one pays VAT online there would be a refund when one collects at the Port. However one recoups the VAT it must be that customs must be able to tell without doubt that the documentation produced matches the good in their possession and the value of the good declared is consistent with that of Customs.

The products that the Government is most concerned with then are not tangibles but intangibles. This includes items that can be downloaded from the Internet to the Computer like software for computers and other equipment, music, beats, and the services like website hosting and Facebook boosting. All of these are critical to the emerging Creative Sector with its focus on culture and technology. Since the intention of VAT is to tax the consumer and not the supplier then it does not matter that the supplier is outside the jurisdiction.

This is the big question. The two main methods of buying products from overseas are through the use of credit cards and wire transfers. One would expect that the Government would be examining these two systems which fall within the purview of the banking system. This banking system already levies a 2% tax on all foreign exchange transactions. Barbadians must also be mindful that credit cards carry draconian interest rates often as high as 25%. The difficulty here is whether a distinction can be made between any of the transactions to determine whether they should be subject to VAT or not. Will educational material such as books enter freely at the Port be taxed on line if downloaded? The Government can of course take the position of insisting on the payment of the VAT and leaving it to the purchaser to get that refund.


Very few countries have found an efficient way of imposing this tax on online transactions and Barbados is not ready for the increased compliance and administrative costs which would result. There can be no doubt that this would be yet another burden for small businesses and especially those operating in the cultural and creative space. The Creative Economy has never had a fair chance to be an engine of growth. An online tax would stymie these individual efforts. Small businesses are already reeling from the petrol tax and the reintroduction of a tax much like the solid waste tax. There is not much more that small businesses can bear, many of them have closed their doors; some professionals have had no choice but to carry on their practice from at home. This measure may very well be problematic and will do more harm than good.


Keeping On Side in 2017

statutory-obligationsFor some it has been a difficult year! As a new year approaches all business people must keep in mind their statutory obligations and seek to meet them.

When you are in business paying taxes is very much a part of the enterprise. However there are some obligations which you may have a tendency to forget:

  1. If you own an international business company please remember that the annual return must be filed by December 31, 2016
  2. If you are an International Business service provider you must renew your licence by the same date.
  3. If you have a domestic (ordinary) company of any kind please remember that there is now an annual return to be filed with a penalty of $10.00 per day. There are some who might not have met this obligation in 2016. If so penalties would be accumulating so this needs to be addressed immediately.

  4. Penalties are now being enforced for failure to notify the corporate registry of any fundamental changes to the company.
  5. All those involved in certain businesses and professions such as lawyers, real estate agents and hairdressers must apply for a renewal of their licence by the end of January 2017.
  6. For those who are members of non-profit companies please remember that the requirement to file financial statements will now be enforced.
  7. Know Your Customer procedures for gate keepers are also being enforced. Gate keepers are not simply financial institutions but includes lawyers, accountants and real estate agents amongt others. Broadly speaking one must be conscious of ensuring that one is not a part of a larger money laundering, financial crime or terrorist scheme.

Lynette Eastmond

Reviewing the Provisional Collection of Taxes Act -taking the lazy way out?


 I always believe that ultimately, if people are paying attention, then we get good government and good leadership. And when we get lazy, as a democracy and civically start taking shortcuts, then it results in bad government and politics. –  Barack Obama

The Barbados Act gives the State the ability to impose new taxes without the Citizen having the opportunity to vet those taxes

The Provisional Collection of Taxes Act (PCTA) Cap 85 of the Laws of Barbados gives the Minister of Finance through the Parliamentary process the power to make and have resolutions passed allowing taxes to be collected without the relevant tax legislation having been enacted.

The Commencement date for this Act is June 30th 1967.

The Act is very short and contains the following features:

  1. The Act covers existing taxes as well as new taxes.
  2. Once contained in the approved budgetary proposals of the Minister of Finance, they have effect on the date announced by the Minister as if the appropriate legislation had been enacted.
  3. The legislation has to be implemented within four months of the date of the proposals made by the Minister of Finance in the House of Assembly.
  4. Where the legislation is not introduced and passed within the required time frame any taxes paid under that legislation are to be refunded.

The UK Act is fundamentally different from the Barbados Act

The purpose of this mechanism seems to be to allow the State to continue to collect taxes until the bill authorising such collection has been passed into law. The legislation was adapted  from similar UK legislation.  The reasoning behind this Act in the UK was that income tax and corporation tax were considered to be annual taxes, and could not be collected without the passage of a Finance Bill which would always take some time before the Royal Assent was given. In the interim the State could continue to collect taxes.

The UK replaced its 1913 Act with new legislation in 1968. The UK PCTA of 1968 is somewhat different from the Barbados legislation in the following material respects:

  1. It provides for the renewal for a further period of taxes already in force, whether at the same or different rate and with or without modification.
  2. The resolution must have a statement that it is expedient in the public interest to begin immediate collection of taxes without the enactment of the relevant legislation.
  3. It does not apply to the imposition of new taxes.

The PCTA as a Mechanism for the Imposition of New Taxes is completely inappropriate

The PCTA would work well in the circumstances outlined in the UK Act. The taxes and their collection  would have been in effect for the past year at least and the PCTA would permit the seamless collection of taxes with no disruption of the activities of the taxpayer and the taxpayer would have had the opportunity to review the legislation previously. The mechanism would also work well for a change in tax rates.

It is submitted however that the mechanism does not work well for the imposition of new taxes.

In Barbados the further practice has developed that in circumstances where the legislation has not been enacted within the stipulated period of four months an Act validating the collection of the taxes without the appropriate legislation can be enacted.

The National Social Responsibility Levy is a new tax which should never have been imposed without the provision of legislation available for Scrutiny.

According to the Summary to the Budgetary Proposals of 2016 which appear as an Appendix thereto, a National Social Responsibility Levy (NSRL) was to be introduced from September 1, 2016. The Levy was to be introduced at a rate of 2% on all imports. The levy would also be applied to goods manufactured in Barbados in order to avoid breach of World Trade Organisation rules against imposing discriminatory levies on imports.  There would be no imposition of the levy on goods imported to be used in local manufacturing in order to avoid a double imposition of the levy.

The Budgetary proposals of the Minister of Finance were delivered in the House of Assembly on August 16, 2016. The practice direction from the Barbados Revenue Authority was issued on August 30, 2016. Despite the practice direction there was still a great deal of uncertainty as to the mechanism for the imposition of the tax.

It is submitted that this was insufficient time to put into operation a new tax. There is no obligation by the Minister of Finance to use the PCTA even though available as a legislative tool. Far less disruption would have occurred had the practice of consultation and  running models for the imposition and collection of taxes been engaged.

The Constitution allows the State to tax its Citizens but does not give the State the right to circumvent the legal fetters meant to protect the Citizen.

Let us start at the beginning. Money can be considered property and  Section 16 of  the Constitution of Barbados does protect Barbadians from the deprivation of property  “ except by or under the authority of a written law”. Within that very section   there is a carve out for taxation where the act of deprivation is “ in satisfaction of any tax, duty, rate, cess or other post”. Nevertheless despite this carve out one could argue that exceptions to fundamental freedoms should be construed as narrowly as possible in order to avoid the creeping erosion of such rights.

Dr. Francis Alexis in his treatise Changing Caribbean Constitutions states:

Where the limitation of a right is allowed by the Constitution, what is done must have a legitimate aim or objective regarding the permitted limitation. The measure provided for by the law must be proportionate to that aim, the law must not be disproportionate, overbroad, excessive or too wide. There must be proportionality between the measure applied and the mischief being cured.

In support of this position he quotes Lord Diplock in Ryan v. A-G (1980) A.C 718 at 718E.

In the case of the NSRL the State is seeking to impose a new tax which prima facie would be in breach of the fundamental rights of Citizens in the circumstances where there is no written law. Is the PCTA the written law to which the Constitution refers? Arguably it is not, since it is not a substantive Act itself which contains any charging provisions by which a tax could be levied and more worrisome any safeguard provisions for disputing the levying of such taxes.

Even if one were to accept that the PCTA could be used for the imposition of new taxes that piece of legislation includes a fetter in favour of the Citizen in that it gives the State four months  to put its house in order. In many instances the State side steps that fetter in favour of passing a validation act in order to cure the breach.  The purpose of legislation in taxation is to ensure that there is certainty and that the provisions of the law do not encroach upon the fundamental rights of the Citizen more than is necessary. It is submitted, that to then take the next step of validating such legislation erodes another mechanism to check the encroachment of the State on the rights of the Citizens.

If one were to embrace the argument of Dr. Francis Alexis one must look to the mischief which the State seeks to cure and determine its legitimacy. One can only guess that the State is seeking to avoid the process of  implementing a new tax through the process of writing a policy paper, consulting with stakeholders and passing the resulting legislation through Parliament and the Governor-General.  Is the ultimate mischief that the process is too time consuming? The Constitution is after all according to Section 1 of the Constitution the supreme law and one should tread cautiously when dealing with provisions which might facilitate a breach of the Constitution.  And the limitations to such rights and freedoms allowed by the State are according to section 11 of the said Constitution in existence to ensure that all Citizens enjoy them or are in the public interest, not to facilitate the State ignoring legal fetters in exchange for the quick collection of taxes.

The Constitution, fundamental rights and freedoms, tax legislation and short cuts do not go hand in hand.

It is unconscionable that the PCTA should be used to impose new taxes on Citizens and should be halted.

It would seem that the PC TA has strayed from its origins which was to allow the State to continue to collect existing taxes until it had a fresh mandate to do so under legislation. The PCTA raises too many Constitutional and moral issues in seeking to impose new taxes through this mechanism. The current approach of the State results in the State engaging in activities  which do deprive the Citizen of property but without the necessary scrutiny. The substance of the legislation is not circulated in the Gazette in order to give adequate notice to the Citizens and nothing is laid in Parliament to be scrutinised by the representatives of the people before implementation. New taxes should not be imposed on Citizens without the most careful scrutiny.

This means that the Citizen can not  determine the practical impact on him, his business or his household and more fundamentally whether it encroaches on any existing fundamental rights. The mad scramble to hold consultations and collect taxes within a matter of a few weeks may provide an adrenaline rush, however there can be  no reason good enough to sail so close to the abrogation of the rights of Citizens. The imposition of new taxes through the PCTA should be put to an end and the PCTA amended in order to remove the ability to impose new taxes through this piece of legislation.

Lynette Eastmond