Belize Service Charge Now Subject to Business Tax!

Belize Service Charge Now Subject to Business Tax!

 

The Income Tax Department has recently made a ruling that all service charge collected by the Hotels/Resorts are now subject to business tax. This ruling is retroactive and if it is determined that during an income tax audit that service charge was previously collected and not paid, and assessment will be raised for the corresponding business tax in addition to interest and penalties.

Most hotels/resorts do not benefit financially from collecting the service charge and periodically all that is collected is eventually distributed to their employees and form a part of their total emoluments (subject to income tax p.a.y.e.). As such, service charge might be deemed conduit funds, which to the best of my knowledge is not subject to business tax.

This is supported by Section 2 and Section 16 (1) of the Hotels and Tourist Accommodations Act which states:

“service charge” means any money or other thing of value collected or received from a guest or customer of any hotel, tourist accommodation building, restaurant, cafe, nightclub or other place of entertainment or hospitality, which is excess of the basic contractual liability of that guest or customer and is, or is purported to be, collected or received in respect of the quality of service afforded to that guest or customer, and without prejudice to the generality of the foregoing, includes any sum, whether calculated on the basis of a fixed percentage or otherwise, levied on the amount charged to such guest or customer and expressed to be in respect of service;"

16.-(1) Any service charges collected or received by a proprietor or employer from guests or customers shall be distributed among employees in accordance with the provisions of a scheme prescribed or registered under the provisions of this section, and in the absence of any such scheme, by agreement with the employees.

As such, Tourism related interest, Resorts/Hotels are encouraged to include the service charge collected in their business tax calculation.

Belize Payment for Public and Bank Holidays

As a follow up to my update in December 2011, one of the major changes that the Labour Amendment Act No 3 of 2011, (effective May 1, 2011) effected was the payment for public and bank holidays and that for Christmas Day, Good Friday and Easter Monday. 

I have been waiting to see if the Labour Department would have reversed this modification to the principal Labour Act but to date this has not been done and it is perhaps time for Employers to make the necessary changes to their payroll.

The changes are:

Assuming the employee is at work on a public and bank holiday, under the ( Amendment Act), 2011, all work done on public holidays shall now be paid at the rate of one and a half times the employee ordinary rate, in total. That is, you get your regular day’s pay plus half your ordinary day's wage.

Assuming the employee is at work, all work done on Christmas Day, Good Friday and Easter Monday shall now be paid at double the employee ordinary rate of pay, in total. That is, you get your regular day’s pay plus one time your regular day's wage.

To effect this change to their payroll, employers should provide employees with a written notice of the aforementioned amendment. Best practice would be to give at least two weeks to a month’s notice to employees. I have a sample text that can be used to provide notice to employee and do let me know if you  need me to forward you a copy.

Wilfred Rhaburn, CPA

Managing Partner                                   

W. Rhaburn Consulting

Pescador Drive

San Pedro Town

Ambergris Caye, BELIZE

Tel: +501 610 4407

Fax:+501 226 4438

P.O. Box: Unit 540, Quicksilver Messenger Service

E-mail: wrhaburn@consultingbelize.com

Website: www.consultingbelize.com

Blog: wrhaburnconsulting.blogspot.com

Belize GST on Fuel Replaced by New Custom Duty

In listening to the Prime Minister’s budget presentation and subsequent budget debate, it is noted with interest that the GST (general sales tax) as applied on fuel was replaced by a revised/new custom duty (in lieu of the 12.5% GST). It is my understanding that this change has been implemented.

While this may result in a somewhat lower cost of fuel for some business owners, for others it may result in a higher cost of doing business for Business Owners via being unable to claim and offset the GST paid . Specifically, this is because for those qualifying business (prior to the implementation of the new import duty) they were able to claim the GST paid on fuel as an input credit against the GST collected (output). For those businesses with a high fuel use, this may negatively impact business operations and cash flow via the elimination of the GST input tax credit on fuel.

To the best of my knowledge the new/revised custom duty will be not be recoverable.

Could this be a clever way of plugging the budget  deficit?

Wilfred Rhaburn, CPA

Managing Partner                                   

W. Rhaburn Consulting

63 Barrier Reef Drive

San Pedro Town

Ambergris Caye, BELIZE

Tel: +501 610 4407

Fax:+501 226 4438

P.O. Box: Unit 540, Quicksilver Messenger Service

E-mail: wrhaburn@consultingbelize.com

Website: www.consultingbelize.com

Blog: wrhaburnconsulting.blogspot.com

Belize's Economic Dilemma

Under Article IV of the International Monetary Fund’s (“IMF”) articles of Agreement, the IMF holds annual bilateral discussions with member countries such as Belize on the state of its economy. The discussions on Belize’s economy ended on September 9, 2010 with the staff report (the “Report”) completed on October 4, 2010, the report became available to the public on January 14, 2011.

According to the IMF, the Belizean economy in past years has been vulnerable to adverse shocks mainly because of our high external debt, policy rigidities and reduced access to external financing. Furthermore since 2006, Belize’s economic growth has been lackluster and driven mostly by petroleum extraction and tourism related construction. In 2007, debt restructuring eased external debt service, but public debt stayed high and foreign reserves low, which limited Belize’s capacity to respond to external financial shocks.

Since early 2008, some progress has been made to reduce Belize’s exposure to external shocks and to strengthen its growth. The Belize government’s progress to date has been to tightening monetary policy including the banking regulatory frame work. Belize’s external position has also improved with foreign reserves increasing from 2.1 months of exports in 2008 to a projected 3.4 months of exports at the end of 2010. The IMF also commended the Government of Belize for their prudent macroeconomic management in the face of the global crisis and severe floods but at the same time it also noted the following:

·         Economic output stagnated in 2009 due largely to weakening tourism and agriculture which suffered from the effect of floods in late 2008.

                    

·         While tax revenues remained stable, Belize’s public finances weakened substantially, namely the budget deficit declined to 1.5% of GDP in FY 09/10, due to lower grants and higher current spending (namely wages).

·         The banking system is facing increased risk in recent years due to non performing loans (“NPLS”) which equaled to 20% of total loans in mid 2010. The increase in NPLS has been concentrated to 3 banks (2 domestic banks and 1 offshore bank). These three banks account for 40% of deposits in the banking system. However, the IMF also noted that deposits and credits in the banking system have remained broadly stable through June 2010.

·         Social indicators have weaken, as per IMF assessment, poverty affected 40% of the population in 2009 up from 33% in 2000.

Belize’s nominal GDP is projected at 2.863 million at the end of 2010 and the economy is projected to grow by 2% in 2010. Despite the recent tax measures taken (namely the increase in the general sales tax from 10% to 12.5%) the budgeted fiscal deficit is projected to widen to 2.2% of GDP due largely to lower grant disbursements and increased expenditure. If current trends persist, the IMF projects that over the medium term, Belize’s economic growth would be restrained to 2.5% of GDP (below historical trends of approximately 4%) resulting in total external financing needs (budget deficit) in the range of 8.5% to 10% of GDP annually; there would be limited room in the public finances to redirect spending to social priorities and foreign reserves would decline to under 2 months of imports by end of 2019.

As an alternative to the present status quo, the IMF proposes a series of economic measures (the “active scenario”) which would raise Belize’s economic growth to 3.5% over the medium term and also lower external financing needs. These measures are based on sustaining a primary surplus (budget surplus) of 4.5% of GDP starting in 2011. Under the IMF’s active scenario public debt is projected to decline to 40% of GDP (currently slightly under 80%) and foreign reserves would further strengthen to 4 months on exports by the end of 2019.

However, the turnaround in key economic indicators would come at a cost to Belize. Salient features of the IMF’s active scenario include:

·         Expenditure - Reducing and streaming the Government of Belize’s wage bill, limiting growth of the wage bill in non priority spending areas, eliminating generous benefits such as contributions to public officer’s pension scheme and moving to a dual pension contribution system.

·         Revenue - the Government of Belize should give serious consideration to raising the general sales tax to 15% (in line with regional levels) or phase out the 2008 reduction in the fuel excise tax.

·         Social Security – the Government of Belize should commence implementation of the latest actuarial report, to bring benefits paid in line with social security contributions by employers and employees (increasing social security contributions).

The Government of Belize has so far resisted the implementation of the recommendations under the IMF’s active scenario noting that it will be “difficult to implement give the political and social conditions.” With this said, Belize’s options to reduce the projected budget deficit are limited. and difficult. Difficult, considering that is there is a gradual decline in grants, our high public debt (in relation to GDP) limits access to external financing, public expenditure (namely the wage bill) remains high, barring the discover of the new oil fields, the economic contribution by the petroleum industry is expected to decline, starting in 2013.

It will be interesting to see which course of action the Government of Belize undertakes in the short to medium term.
 

Wilfred Rhaburn, CPA

Managing Partner                                   

W. Rhaburn Consulting

63 Barrier Reef Drive

San Pedro Town

Ambergris Caye, BELIZE

Tel: +501 610 4407

Fax:+501 226 4438

P.O. Box: Unit 540, Quicksilver Messenger Service

E-mail: wrhaburn@consultingbelize.com

Website: www.consultingbelize.com

Blog: wrhaburnconsulting.blogspot.com

Belize Income and Business Tax (Amendment (No. 2) Act, 2010

The Government of Belize has further amended the Income and Business Tax Act as it relates to Income Tax (P.A.Y.E.). Under the new amendments, Income and Business Tax (Amendment (No.2) Act, 2010, there are now four (4) distinct taxable thresholds.

Threshold 1 - If your total employment income does not exceed $26,000 the new threshold is $25,600.

Threshold 2 - If your total employment income exceeds $26,000 but does not exceed $27,000 the new threshold is $24,600.

Threshold 3 - If your total employment income exceeds $27,000 but does not exceed $29,000 the new threshold is $22,600.

Threshold 4 - If your total employment income exceeds $29,000 the new is $19,600.

The new Income Tax Amendment is retroactive and effective to January 1, 2010 and replaces the amendment made in early 2010. The Income Tax amendment should result in significant refunds to employees making less than $29,000 for the 2010 basis year. Employers should  also take note and amend their payroll accordingly to reflect the new Income Tax (p.a.y.e.) amendment. The Income Tax Department will also have its hands full as new forms and guidelines will have to be developed and implemented to reflect the new Income Tax Amendment.

Wilfred Rhaburn, CPA

Belize Business Tax and Charitable Contributions

There are very few allowable adjustments to gross income for business tax reporting purposes. However, the Income and Business Tax Act does allows adjustment for charitable contributions against your gross revenues in the month of December. Kindly note the following extract from the Income Tax Department publication:

The Business Tax Act allows the following adjustments to your receipts to arrive at the total revenues you are to pay tax on:

 Gifts aggregating $500 or more, taking effect in Belize, for Sports, Religious, Charitable, Educational or Cultural purposes or for the improvement of amenities in Towns or Villages, up to a maximum of $30,000 per annum. Original receipts/acknowledgments must be submitted for the Commissioner to be satisfied that the payments were actually made.

This is supported by section 105 (viii) of the Income and Business tax act which is similar in text and states:

absolute and immediate gifts amounting in the aggregate to five hundred dollars or more, taking effect in Belize, for sports, religious, charitable, educational or cultural purposes or for the improvement of amenities in towns or villages, up to a maximum of $30,000 per annum, provided that the Commissioner is satisfied that the gifts were

actually made;

Note that the Income and Business Tax Act does not state that this offset is to happen only in December rather the Income Tax Department has decided to implement it as a policy for easier administration.