Consumers will directly shoulder roughly 70% of the tax measures that the Government says have been engineered to plug the hole in the new national budget. The unofficial reports of a suite of tax hike measures — the second consecutive tax hike for the Dean Barrow administration since it came to power in 2008 — were confirmed Monday morning, March 15, when Prime Minister and Minister of Finance Dean Barrow tabled his third budget for 2010/2011 at a meeting of the House of Representatives in Belmopan.
Barrow announced that he intends to close the $61 million hole in this new budget — incidentally the same $60 million as was projected in last year’s budget — mainly with an increase in the General Sales Tax (GST) rate from 10% to 12.5% effective April 1, 2010, which alone is expected to raise an additional $42 million from consumers.
This is the same level of tax increase that the International Monetary Fund (IMF) had recommended to Belize last year.
The GST hike drives the growth of tax burden up by roughly 50% since the 2005/2006 budget year, five years ago, when tax receipts were estimated at $473 million as compared to $703 million in the new budget.
Barrow claims that the effects on the poor will be buffered with some key tax relief measures: the removal of import duties and GST from certain cooking oils, hot dog sausages, luncheon meat, potted meat, macaroni and cheese dinner, hot chocolate, cocoa, coffee, breakfast cereals, vitamins and supplements, yeast, powdered detergents, school bags, banana cable ways (for agriculture industry), irrigation pipes of plastic, tractor parts, refrigerators, washing machines, and stoves. He also proposed the removal of import duties on carton boxes, egg boxes and trays, rice for sowing, banana plants and dialysis fluids. He also said that all persons earning less than $500 a week, or under $24,000 will not pay income tax, and the ceiling for GST exemption on light bills would be raised from $150 to $200.
Last year, the Barrow administration implemented a $1 flat tax on fuel at the pumps, singularly raising $30 million, which was to go halfway to help close a $60 million financing gap.
When we had questioned Prime Minister Barrow about the IMF tax recommendation back in May 2009, he told us, “not in the current climate… How can we raise tax at a time like this? …The IMF doesn’t get it.”
At the time, Barrow was candid in saying, “We don’t want to reject it out of hand.”
That confirmation came today, while Barrow presented his $876 million spending plan, to be financed with $700 million in tax receipts, $127 million in financing, $80.7 million in non-tax revenue, and $22.5 million in grants. The budget also makes provision for $63 million in amortization of Government’s debt, which stands at just under $2 billion.
In 2006, the Sales Tax was hiked under the Musa administration amid fierce public protests and objections, and implemented on July 1, 2006, at a rate of 10%. GST replaced the 9% Sales Tax which started out in April 1999 at a rate of 8%, after the People’s United Party abolished the United Democratic Party’s 15% Value Added Tax.
The quiet over the tax increase comes against the backdrop of Mr. Barrow’s admonition at his February 11 press conference that, “The upcoming fiscal year is going to be the hardest of the UDP term. …This is going to be an extremely difficult year, and we are going to have to ask people to make sacrifices.”
Barrow also tabled an amendment to the Income and Business Tax Act which would enable an increase in the business tax rate for the supply of electricity services from 1.75% to 6.5% to raise $10 million.
At the same time, he projects, “…a marked increase in electricity generation as the Vaca Dam facility and the BELCOGEN facility come fully on line.”
“This tax is based on the profitability and the perceived ability to pay,” said Barrow. “It is still far less than such suppliers would be paying if they were under an Income Tax on Profits regime, since we note, according to the PUC, profits in the sector continue to be bountiful.”
The third measure is a flat excise tax on crude oil, $1.00 per barrel for locally-produced crude. According to Barrow, this is projected to raise $1.8 million for the budget year.
“This is to provide additional revenue to Government in view of the increased road maintenance on the Western and Hummingbird Highways necessitated by the transport of the crude oil to the port at Big Creek,” said Barrow. “I repeat what I said earlier about the need not to destabilize the nascent petroleum industry; but at a time like this, the sole producer cannot be boasting abroad of how well it is doing without being prepared to give a little more to the country and society that have enabled its bonanza.”
Barrow is also introducing a social fee of 5% on the value of all goods and services imported into an Export Processing Zone, for another $3.5 million to help stop the hole in his budget.
“It is felt that a small fee to offset the duty free status of the EPZs would not threaten their operations or their international competitiveness,” Barrow indicated.
Together the new measures are projected to raise $57.3 million, still short of the $61 million the Government claims it needs to raise.
Finally, Barrow said that his administration will press to collect roughly $4.2 million in outstanding arrears, for “still outstanding taxes never paid by the previous owners of BTL…” and from big landowners who have not been paying their taxes.
The Sitting of the House was adjourned at 2:18 p.m., and is slated to convene again for the budget debate Thursday, March 25, 2010.
Along with the new tax measures, Barrow is also proposing the removal of import duties and GST from certain products, mentioned above.
He also noted that, “Government continued borrowing, under concessional terms, from its multilateral and bilateral partners, and sizeable inflows to the Central Bank from the IMF contributed to the increase in gross official reserves by $104.1 million to $427.4mn, the equivalent of 4.3 months of merchandise imports. These inflows were — I hasten to make clear — for balance of payments support and came without [IMF] conditionalities.”
The Opposition People’s United Party (PUP) will have its chance to respond fully to Barrow’s budget presentation when it is debated on Thursday, March 25.
However, Opposition Leader Johnny Briceño said at Monday’s sitting, during the debate on a package of reforms for the financial industry, that Prime Minister Barrow was also making those legislative changes to tap into further funding to prop up his budget.
(We intend to have more on the budget presentation in the weekend edition of the newspaper.)