Barbadians are heavily taxed. Most taxpayers do not mind paying their fair share of taxes once they can reap the social benefits and enjoy a decent standard of living. Additionally, the introduction of levies that go towards a national good can be appreciated. The Queen Elizabeth Hospital (QEH) levy, the Garbage and Sewage tax and the most recent Resilience and Regeneration levy, added to national insurance payments, are examples of taxpayers contributing to the national good.
The problem emerges when services do not improve. For example, services at QEH have not improved, evidenced in the plethora of complaints daily on call-in programmes, and the lack of improvement in garbage collection around the country.
Of late, the consistent imposition of levies has become overbearing, with many Barbadians complaining and justifiably so, about the current tax regime. It is ironic that the InterAmerican Development Bank’s 2025-2030 Country Strategy proffered that private domestic and foreign investment is challenged by several hurdles, including “a burdensome tax structure”.
This is why the introduction of a rental car levy, which penalises visitors and locals alike, is difficult to comprehend. From this month, government is moving forward with the Car Rental Levy, originally scheduled for October 1, 2025, and now expected to be implemented by October 15, 2025. This levy will replace the visitor permit and will charge $5 per day for a maximum of seven days, adding up to $35 per rental. While this levy is a sector-specific tourism charge, targeting only vehicle rentals rather than general tourism spend, still represents a disproportionate hit to smaller operators, many of whom are already struggling to recover from the economic pressures of the COVID-19 pandemic.
For some time, governments have sought to tax heavily the tourism sector, which has been touted as the cash cow for the economy. This, however, has been buttressed by the provision of several incentives for major tourism players to balance any increases in operating costs.
Large operators, including international hotel chains, resort groups, etc., can absorb the cost of a modest levy across multiple revenue streams. Their pricing structures are more flexible, allowing them to fold the levy into room rates without significantly affecting demand. They may also benefit from greater economies of scale and marketing reach, insulating them from marginal increases in cost. These large players already benefit from a range of concessions under the Tourism Development Act and related investment legislation. These include duty-free concessions, tax rebates, and other incentives that reduce their operating costs. A major resort can absorb or redirect costs because it has multiple revenue streams: rooms, restaurants, spa services, golf courses, events, and tour commissions. A small car rental operator has none of that.
The problem is that small rental firms operate with tighter margins and less pricing power. A levy that adds even a small percentage to their costs can erode profitability. They are often more vulnerable to shifts in visitor behaviour, such as tourists opting for bigger brands with bundled rates or more perceived value. These small businesses are also facing challenges from the underground economy — individuals who are not legally registered, do not pay their taxes, but provide vehicle rentals to locals and sometimes visitors, at prices net of any taxes or levies.
Imagine a modest car rental business based in St Philip, with 10 vehicles primarily serving budget-conscious returning nationals and mid-range tourists. A five-day rental now carries a $25 levy. If the operator’s net profit per booking was previously $40, the levy wipes out more than half of that margin. A price increase risks losing those customers altogether. Meanwhile, a large resort with hundreds of guests and in-house luxury amenities remains untouched by this levy.
Any economist worth their salt will argue that revenue generated by smaller players like Airbnb, rental firms, and the like will contribute directly to the economy as these transactions circulate in real time in the economy. Persons are employed, products and services are procured and, yes, taxes are paid, faster. This is why it makes good economic and even political sense for an administration to insulate smaller players since they are not benefiting from incentives and concessions and have the potential to contribute more directly to economic growth.
Global research, including reviews commissioned by the Welsh Government, shows that the impact of a tourism levy depends on its structure. Flat per-day taxes without exemptions or tiering tend to hit small, locally owned operators hardest. Why?
Smaller companies cannot spread costs across large volumes
Larger firms can use tax concessions or pricing power
Flat-rate levies take a bigger percentage bite from smaller margins
Customers are more price sensitive at the lower end of the market
This is why many jurisdictions exempt or scale down levies for micro and small businesses to protect their competitiveness.
International experience also shows that transparent use of levy revenue builds trust. Several countries in Europe use income from levies to support infrastructure, conservation, and marketing, all clearly reported. Levy allocations are published annually in municipal budgets.
By contrast, in Barbados, there has been no clear commitment on how revenues from the Car Rental Levy will be allocated or reported. This lack of clarity creates understandable concern, as businesses are wary of measures that take without showing a tangible return.
This isn’t just an accounting issue. Over time, the cumulative pressure on small operators can push them out of the market, allowing larger, well-capitalised players to consolidate even more control over the tourism economy. The end result? Less local ownership, reduced community benefit, and a less inclusive tourism sector.
The post A tax on the little guy: Why Barbados’ Car Rental Levy misses the mark appeared first on Barbados Today.
