The Minister of Finance and Culture, MinFic, announced a few changes last week. As we review the list it is clear that these changes are making the burden on tax-payers much heavier, which in combination with inflation puts pressure on employees to further pressure their employers, who will or won’t yield to demands for salary increases, to help meet obligation GOA imposes on the public.
Because of the HUGE debt carried by GOA, in need of constant servicing, GOA is looking for money, fast, short-term, no long-term solutions, just grab more low hanging fruit, and da hell with the rest.
Originally, we were told that GOA has been planning a fiscal reform for implementation in 2023. That news item was welcomed by commerce and other stakeholders — finally our complicated and outdated tax system will be re-worked. We celebrated prematurely. Due to the current global inflation, but mainly due to lack of political courage, and the proximity of the next elections, they decided to introduce a Tax Plan 2023, instead of a reform.
Starring feature in the Tax Plan 2023, is an increase in BBO tariff instead of the more complex, root canal of all tax reforms, the introduction of BTW.
And thus, GOA’s declared goals of improving public finances, redistributing the tax burden, and offering some compensatory measures, resorted to plan B.
The changes MinFic outlined are effective January 1, 2023.
BBO/BAZV/BAVP increases from 6% to 7%, the BBO portion increases to 2.5%. What can we say about that? All prices are guaranteed to go up by more than 1%.
Tourism Levy, better known as Room Tax will Increase from 9.5% to 12.5%, so that hotel room rates will increase, making the destination more expensive.
Here is a big change. The tourism levy revenue will be divided three ways: 57% to ATA, 40.8% to GOA’s budget, 2.2% to TPEF. The way it worked since 2011, is that ALL revenues went to ATA, as arranged by a former notorious, Minister of Tourism.
For a long time, 100% of tourism receipts went to ATA, to what was called Otmar’s Bank. ATA had tons of money and even offered a ‘bribe’ to GOA, a few millions in exchange for dropping the timeshare law. It didn’t help, the law passed anyway, but every year, if ATA was incapable of spending its budget, surplus went to GOA.
Now, from the get go, 40.8% will be funneled to the treasury and ATA will get less money for the promotion of the island, and that is perhaps the reason why the ATA CEO’s speech on Tourism Day, September 27th, was so focused on income and tourism dollar.
TPEF is the Tourism Product Enhancement Fund and they do great things, focused on beautification and cleaning.
Since 2011, as the ATA budget was approved by the board and GOA, “surplus” revenue at end of year went to the treasury, now almost half is directed there.
With this system of accounting, GOA increased the tourism levy, but also secures its much larger portion up front, reducing the funds received by ATA.
So more expensive rooms, but less money to promote the island.
There are many other business-related changes, such as capping directors’ salaries, and improving compliance of Vacation Rentals, which the hotels have been talking about for a long time.
The compensatory measures for individuals, are small, for example 2% lower income tax, and there are some compensatory measures for business, for example lower profit tax from 25% to 22%.
The BBO increase is expected to have an inflationary effect, estimated at 1.4%. From reading I can tell that: War-induced commodity price increases and broadening price pressures have led to 2022 inflation projections of 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies.
Our island’s inflation rate is estimated at 6%+
Not a word mentioned regarding the Golden Rule: Don’t spend more than you make.
To conclude: We continue to rely on tourism, 100%. While we must diversify. GOA should come up with attractive incentives to encourage the economy to diversify away from tourism, the private sector will save us, if incentivized — make it easier instead of more difficult.
