Budget: Tax Increases & New Service Sales Tax

February 19, 2016

In 2016/17, the Government will increase Payroll Tax, Customs Duty on fuel, tobacco and alcohol as well as implement a new services sales tax at a rate of 5%, Finance Minister Bob Richards said in today’s Budget Speech.

Bob Richards Bermuda 160219

New GST Tax Of 5%

As far as the new General Services Tax, the relevant portion of the Budget Speech said, “Mr. Speaker, in order to broaden the tax base, a new services sales tax, to be called the General Services Tax [GST], will be levied on turnover from the provision of most services by service providers to the public.

“It is proposed that this GST will be levied at a rate of 5%.

“As this is a change that will require significant adjustments in operations, billing, and reporting on the part of service providers and collecting, tracking and enforcement on behalf of Government, this tax will not be implemented until April 1st 2017 at the earliest.

“Notable exemptions to the General Services Tax will be in the sectors of banking, insurance and health care. Small service providers will also be exempted from the tax. “

“The net uptake from this new tax is anticipated eventually to be approximately $50 million per year.”

Increase Payroll Tax, Customs Duty on Fuel, Tobacco and Alcohol

Speaking on other increases, the Budget Speech said, “In order to reduce the deficit, and provide for much needed services, the Government considers it appropriate now to increase our revenues.

“Accordingly, in 2016/17, the Government will increase Payroll Tax, Customs Duty on fuel, tobacco and alcohol and implement the biennial review of government fees. The standard rate of payroll tax will be set at 15.5% in 2016/17, an increase of 1%.

“There will also be a similar increase of 1.0% for most other tax rate categories. The limit on taxable wages for purposes of payroll taxes will remain the same at $750,000.

“The rate of tax recoverable from employees will be set at 6.0% in 2016/2017, up from 5.5%. This is so that the increase may be shared by both employer and employee.

“Payroll concessions currently in place for the hospitality, restaurant and retail sectors will be partially rolled back in 2016/17 with businesses in these sectors paying a rate of 8.0%.

“The yield from Payroll Tax following the revised rate structure and partial rollback for payroll tax concessions is estimated at $390 million in 2016/17.

“Mr. Speaker, the duty on fuel will be raised by 8 cents per litre in April 2016 and 5.5 cents for fuel imported by BELCO to achieve additional Customs revenue of about $11.7 million.

“The duty on cigarettes and tobacco and beer, wines and spirits will be raised in April 2016 to achieve additional customs revenue of about $4.0 million.

“Government fees for an array of services provided to the public will be increased by about 4% for most fees and the anticipated increased yield should be $1-2 million.

Nobody Likes Tax Increases

Minister Richards added, “Mr. Speaker, nobody likes tax increases, not the Ministry of Finance, not the rest of the Government, not the business community, not the man in the street. Some of the measures outlined in this Budget Statement will not be popular.

“But Debt Service has become the second largest “ministry” in Government. It is stealing from the future of our children and their children. It is constricting our ability to respond to people’s needs. It is weakening our ability to maintain the infrastructure that supports everyday life.

“It is threatening our solvency and, with that, our financial independence. So we must get to grips with the deficit and debt problem because they stand between us and a secure future.”

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Comments (39)

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  1. meh. says:

    Time to institute a corporate income tax. These silly little efforts just squeeze those in need even more without creating enough revenue to right the ship. We could easily get away with a 1-2 % tax (especially as Bermuda just received Solvency II equivalency)

    • Noncents says:

      @meh

      It’s a slippery slope. Corporate income tax, even a very modest one, will scare away IB and create opportunities for our competitors to capitalize.

      The biggest failure of this budget speech is the limited attention paid to spending. The OBA are supposed to be the fiscally conservative party and need to be the ones to make the tough decisions on wasteful spending. I believe that you can attack the problem from multiple angles (increasing revenues + reducing spending) but to do that they need to grow a backbone and cut the number of civil service employees. It will be painful and will likely cost votes but it needs to be done.

    • LiarLiar says:

      The PLP, in 2011, renewed the Exempted Undertakings tax Protection Act 1996 in which exempt companies (i.e. IB) do not have to pay a litany of taxes (including corporate profit and income tax) until March 2035.

      Break that legislated promise and you will ruin the jurisdiction’s reputation as a stable and friendly jurisdiction in which to do business.

      Look what happened in 2010 when Minister Cox surprised the industry with a payroll tax and foreign currency purchase tax hike. A year later Ms. Cox had to roll back the former due to the devastating effects it had on this sector.

      • lowe says:

        So it’s OKAY for the OBA to increase payroll tax???? When the PLP did it people made it seem like the world stopped spinning. Politics in this island is a joke.

        • Cranberry says:

          The joke is on you sir!! You put too much faith in politics and politicians no matter what party!!

        • Onion says:

          The PLP did it without warning and because it had lost control of finances. It was totally unjustified and driven by desperation.

    • serengeti says:

      It was Cox who enshrined into law the extension of the tax-free period for IB until 2015.

      Don’t tell me. Another thing the PLP did themselves that they now expect to change?

      • serengeti says:

        2035, not 2015. Typo

        • planeasday says:

          Not this time just some above poster named meh….who by your logic must represent the PLP…

  2. mike says:

    I guarantee you that this tax will not be temporary. You think tourist were b*tching bout prices before. Wait until post April 1… Happy April Fool’s!

    Having said that, if the OBA can pull off reduction of debt and deficit… more power to them(not literally though).

    • Build a Better Bermuda says:

      I am disappointed in this new tax, it is going to put a greater burden on the local retail and trades sectors. The only way this tax should be employed should be with reasonable reduction to the duty on commercially imported items, but I would leave the rates on personal importation, whether online or through the airport.

      • Lois Frederick says:

        It will be interesting to see what the unified duty rate will be.

    • WillSee says:

      Tourists whine all over this world. The cruise ship ones are the worst as they have no money anyway.
      I just came back from London on business and it is far more
      expensive there than here.

  3. whatever says:

    Actually, that’s a 6.9% increase in payroll tax and the employees get stuck paying proportionally more than the employers (as a percentage increase).

    I would have thought that Bob could have done basic math.

    • Build a Better Bermuda says:

      Not sure where you are getting you math, but it is only a 1% increase, spread half and half over employee/employer

      • whatever says:

        (15.5% – 14.5%)/14.5% = 6.9% Total % increase in payroll tax
        (6.0% – 5.5%)/5.5% = 9% increase for employee
        (9.5% – 9%)/9% = 5.5% increase for employer

        A 1% increase in payroll tax would be .145% or for a tax rate of 14.645%

        I’m just pointing out that Mr. Bob is making the increase sound less than it actually is, and that the employee portion is a larger % increase for the employee than it is for the employer.

        Ms Cox also used the same wording to soften the blow of her short-lived payroll tax increase, for the record.

        • Build a Better Bermuda says:

          You seemed to have missed where the 1% is applied in your desire to screw the mathematics and pick at the semantics of what the minister said

      • Ignorance is not bliss says:

        14.50 % x 6.90% = 1%. 14.50% + 1% = 15.50%.

        If increase had been 1% of 14.50% then new figure would be 14.645%……..

        It’s a question of increase BY or increase OF

        • whatever says:

          I hate to be pedantic, but if it’s “payroll tax will see an increase OF” or “payroll tax is increased BY”, the number is still the same in both cases – almost 7%.

          For Bob’s statement to be true, it should read “an additional 1% of payroll tax will be levied on S+B up to $750,000, which is an increase of 6.9% from the current rate of 14.5%. Employers and employees will share the dollar cost of this increase equally.”

          BTW this is totally non-partisan anal retentiveness when it comes to numbers. I do math for a living and it drives me crazy to see it done wrong. Particularly by gov’t, when they know perfectly well that the average person may not spend too much time analyzing the #s to verify their claims.

          • whatever says:

            My claim that most people don’t check the math is evidenced by the fact that at least 5 people disliking my comment (which is based on mathematical fact). I did not make any other comment other than the math was incorrect, so that is the only possible conclusion.

            I suggest googling “how do I calculate a percentage increase between two numbers”.

        • Zevon says:

          It’s a bit like when the union dues went up by 17% last year.

  4. archy says:

    we have increased land tax, we are going to pay more payroll, duties will go and we are going to get a service tax plus other as yet unspecified taxes – how long can the private sector carry on taking the burden?

    • Toodle-oo says:

      * How long can the private sector carry on taking the burden ? *

      Unfortunately that’s the conundrum we find ourselves in.
      If the (OBA) Government does what it must do , like what Barbados did the year before last , there will be the encouraged civil unrest and they’ll never get re-elected again , ever.

      Eventually the private sector will say enough is enough and they will revolt , but at the polls .

      Should the PLP , in any re-incarnation or makeover , ever get back in that will be the total end of us , period !

      So , the short of it is , put up taxes, increase the cost of living for everyone , make us even less competitive than we are now but it’s cheaper than riots and doing what must be done . Just keep kicking the can down the road in the name of political expediency .

  5. flikel says:

    Wow…so a sales tax of 5%, in addition to the already high customs taxes?

    I am struggling to get by now….now things will get worse.

    Those of you who think tourists find Bermuda expensive now…will surely not like this move. Imagine going to a restaurant and getting the bill…having to pay the 15-17% gratuity and now an extra 5% service tax. Plus prices will go up as businesses will try to pass on these tax increases to the consumer.

    Living in Bermuda is hard now…and will just get harder.

    I am having a hard time trying to reconcile the lack of cuts in the Civil Service. If the Civil Service is bloated….where are the cuts? Once again, the Private Sector is bearing the brunt of the ‘shared sacrifice’.

    • Legalgal says:

      We’re already being charged a mysterious $3 per head “union fee” by some establishments for goodness knows what. All just skimming the fat off the top. Just not sustainable.

  6. George says:

    How’s about some big cuts in government spending? If the unions aren’t in the streets protesting, government isn’t trying hard enough to tighten their own belt.

  7. Paradise Reclaimed says:

    Past time to cut costs, waaaaay! Import duty is the perfect model, the minute additional taxes were needed, costs should have been scrutinized . . .

    • JUNK YARD DOG says:

      Create a new tax a system they will need a new collection agency.

      I agree Mr. Paradise Reclaimed ,all that have to do is increase all import duties across the board,as the collection base is already in place.

      Don’t want income tax, Do we ?

  8. Common Sense says:

    Reality check! We are billions in debt, and the interest we are paying on this debt is crippling us. The price we are paying for the PLP years is that we will unfortunately have to get used to a drop in our standard of living.

  9. JUNK YARD DOG says:

    Just think that my wife and I retired have worked for the past 45 years in the private sector and in Government, it has all come down to this, a national flogging of the willing horse.

    “Do not put you hands in another mans pocket”.

    • No Brains says:

      In those 45 years your taxes have never gone up?

      • JUNK YARD DOG says:

        You mean have never gone down.

        Governments don’t drop taxes ,they make redundancies.

        want me to make long list.

        1) want to know why cars cost double.
        2) want to know why we pay 4 time more for gas, and so on !

        99) want to know why visitors go else where.

        Hey ! Mr. No Brains I can not tell here what the real problem is besides money, you will have to guess !

        Question of the century.

        Give me one reason why we all go to work ?

        If not!then what is all the fuss about ?

        Bermudians as usual will pass it on to our visitors.

    • No Brains says:

      The OBA needs money cause the PLP f@%$ed it up . It is pretty simple.

  10. PANGAEA says:

    Welcome to the thin end of the wedge .

    Anti – gravity “What go up never comes down”.

  11. Cranberry says:

    Just goes to show the effects a PLP Govt had and continues th o have on our economy. I do understand that there were other factors but the major one was pure economic recklessness…

  12. some beach says:

    You have to control your various departments better if you stifle legitimate business you remove their funding to you…it is simple and basic arithmetic…
    Could it be you are over thinking problems that have simple solutions?

  13. stunned... says:

    the new tax increases are the chickens that sre coming home to roost – everyone in Bermuda will be paying more to service the debt that was recklessly foisted upon us.

  14. PR says:

    Where was the OBA when the PLP had the fingers in the till? The OBA sat by and did nothing except gives them selves a raise. The OBA has blame in this as well. They did not do their job as opposition.

  15. some beach says:

    Pretty please??