Stabilization Measures A Big Response KPMG Commentary — March 26, 2020 2 KPMG 2020 Commentary Foreword Unprecedented times! Across the globe countries are taking extreme and important measures to protect public health, slow the spread of the virus, Please do not hesitate to contact us calm public concerns, and bolster economies. Many different should you require clarification on any of tools and mechanisms are being employed to protect workers, the matters discussed in this document. fight the economic disruption caused by COVID-19, and reduce business stress. The economic measures and the speed with which they are implemented will have profound impact on the global economies, and indeed Barbados is no different. Lisa Taylor The Prime Minister of Barbados has been swift to act to Managing Partner implement stabilization measures which may very well become a T: +1 246 434 3915 lifeline for many Barbadians. It is indeed expected that further M: +1 246 233 5703 measures will be put forward as the impact of this global crisis E: [email protected] becomes apparent. Businesses and individuals are being asked to play their part to stem the impact of the health crisis, and from an economic Louisa Lewis-Ward perspective much more will be asked in the upcoming months to Partner, Head of Tax ensure that Barbados does not fall full victim to the negative T: +1 246 434 3941 global fallout. M: +1 246 231 0348 E: [email protected] The Prime Minister in her address to Barbados indicated that prior to the spread of COVID-19 and fear-driven panic around the world, the Barbados economy was expected to grow by roughly Christopher Brome 1.5% in 2020, predicated on another 3% pick up in tourist arrivals Partner, Advisory, Head of and broad-based recovery in the other sectors including Markets construction. Government now expects the impact to the T: +1 246 434 3907 Barbados economy to be primarily through the virus’ impact on M: +1 246 243 8709 global travel with a significant decrease in tourist arrivals, leading E: [email protected] to a sharp decline in economic activity and resulting in drastically reduced government tax revenues which are used primarily to fund the civil service and social programs in addition to a slower accumulation of international reserves than currently projected Michael Edghill as the baseline under the BERT – IMF EFF* supported program. Partner, Head of Audit T: +1 246 434 3900 Barbados will continue to punch above its weight and the Prime M: +1 246 231 1111 Minister has committed to Government making “the necessary E: [email protected] adjustment in this coming year to prepare the country for this unprecedented shock from COVID-19 while ensuring that we stay the course, remaining fully committed to our BERT program of economic growth and transformation”. Here at home, while we secure our businesses we will need to focus on our people and the careful management of enforcement procedures, paying particular attention to caring for our vulnerable and elderly. We wish you all well. • Barbados Economic Recovery Transformation- International Monetary Fund Extended Fund Facility (BERT – IMF EFF) • All figures quoted in this document are in Barbados dollars except where noted © 2020 KPMG, a Barbados and Eastern Caribbean partnership, registered in Barbados, Antigua and Barbuda, Saint Lucia and St. Vincent and the Grenadines, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. Impact and Stabilization “With a reduction in tax revenues, Barbadians will bring ingenuity and resilience to the fore to weather what will be a protracted road to economic recovery. Louisa Lewis-Ward Partner, Head” of Tax - Companies - Individuals 5 KPMG 2020 Commentary Companies Pre Covid-19 Post Covid-19 Government in late 2018 and into 2019 embarked on Government has projected that the fall in economic a series of adjustments to the Barbados tax platform activity will negatively affect the profit streams of which resulted in a reduction in the corporate tax corporations, the demand for properties and rates from 5.5% to 1%. Inflows at the end of increased compliance issues. February 2020, averaged $220 million. It is expected that corporation taxes and property taxes will be lower than were initially projected by between $19 million and $27.6 million, and between $8 million and $11.4 million, respectively. 2020 Corporate tax rates (non insurance) Taxable income - $0 - $1 million 5.5% Taxable income - $1 - $20 million 3.0% Taxable income - $20 - $30 million 2.5% Taxable income - Over $30 million 1.0% Stabilization measures Stabilization measures Jobs, Investment and Business Survival NIS Deferral - Employers who are retaining more program - Government is engaged with the private than [three quarters/two-thirds] of their staff sector on a major Jobs, Investment and Business complement will be able to defer the employer’s Survival program which will aim to: contributions to the NIS for the next three months in the first instance, with another three months if — facilitate businesses to use the pause in activity necessary. to upskill and invest to come back stronger — encourage banks to defer loan payments for Bank Financing - All banks have agreed to businesses that get into short-term difficulty as a provide temporary working-capital financing result of COVID-19; and options for corporate and small businesses directly — ensure the early start, resumption or impacted by COVID-19. continuation of up to $1 billion of private sector investments. © 2020 KPMG, a Barbados and Eastern Caribbean partnership, registered in Barbados, Antigua and Barbuda, Saint Lucia and St. Vincent and the Grenadines, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. 6 KPMG 2020 Commentary Individuals Pre Covid-19 Post Covid-19 A shift in corporate tax rates was matched with a Government projects that tax revenues will be lower lowering of the personal income tax rates by between $157 million to $240 million depending applicable to individuals. on the severity of the impact of COVID-19 on economic activity. Personal income taxes are expected to be less than originally projected by between $25 million and $38 Personal Income tax rates million, as a result of possible job losses and shorter Taxable income up to $50,000 12.5% working hours in the services sector. Taxable income over $50,000 28.5% Personal Allowance - $25,000 Stabilization measures Stabilization measures Household Survival Program – Implement a NIS support – Government will provide Household Survival Program (injecting $20 million) supplemental support to the NIS Unemployment consisting of three initiatives to assist displaced Fund as needed and within the context of available workers. Those being laid off are entitled to fiscal space. unemployment benefits. Unemployment benefits – Those who are laid off Welfare Support – Where, as a result of COVID- fully will receive unemployment benefits for six 19, a household is left with no person employed, months and those on short weeks will receive 60% Government will provide a minimum income for for the days they are not working. those households and make available through the Bank Financing – all commercial banks have Welfare Department an amount up to $600 per agreed to a six-month payment moratorium on month during this period of hardship. existing loans and mortgages for persons and Adopt-a-Family Program – Government is businesses directly impacted by COVID-19. working with persons who have been fortunate to “Homes For All” Program – Government is to use be earning more than $100,000 a year to adopt a $50 million in the Housing Credit Fund to unlock a vulnerable family and provide them with very further $200 million of financing from the banks to much needed support of $600 per month or to help over 1,000 households construct and own an contribute to an Adopt-a-family fund chaired by the affordable home. The project is projected to start in Director of Finance. three months and is initially targeted at persons with an household income of $4,000 per month. © 2020 KPMG, a Barbados and Eastern Caribbean partnership, registered in Barbados, Antigua and Barbuda, Saint Lucia and St. Vincent and the Grenadines, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. - Social Care -Tourism -Construction -Agriculture 8 KPMG 2020 Commentary Social Care – Stabilization Measures Health Care Schools QEH and polyclinics - An additional $40 million School repairs - Carry out urgently needed repairs will be made available to refurbish the QEH and to schools to the tune of $25 million, which will local polyclinics with critical equipment and any build capacity for disaster preparedness, including supplementary goods needed to manage and the coming hurricane season. contain the spread of the virus. School meals facility - In addition, Government is Hospital equipment - Of the above noted $40 working to complete the construction of the school million, $32.5 million is expected to be capital meals building at Six Roads at a cost of $6 million spending for the purchase of ventilators, beds etc. to enhance the ability to provide food either to while the remaining $7.5 million assumed to be schools or communities as needed. spent on restocking medication as well as other medical supplies.