fp Turks and Caicos

A 23-page report explaining proposed features of value added taxes in the Turks and Caicos Islands has been published for public input until May 25.

The new type of consumption tax is expected to be implemented April 1, 2013, to raise more revenue and spread the tax burden more evenly in the islands.

VAT is considered a stable tax that is more resistant to economic downturns than the current system that relies heavily on customs duty and property sales tax.

The VAT rate has not been set, but the Green Paper estimates a rate between 8.5 and 12.5 percent that will depend on how much revenue is predicted and how many items are exempt.

VAT will reduce customs import duty and the Customs Processing Fee and replace communications tax, vehicle hire stamp duty, and the new tax on insurance premiums and bank charges. VAT also will replace the hotel and restaurant accommodation tax.

However, VAT will be heaped on top of the new Domestic Financial Services Tax and the Insurance Premium Tax. Land transactions will only be subject to VAT if they are not subject to current stamp duty.

Only businesses making more than $100,000-150,000 annually will have to register and collect the tax, but that threshold amount hasn’t been determined yet. Businesses making less won’t be able to charge VAT for the first 18 months but can apply after that if they want to be able to charge VAT and get deductions or credit, according to the Green Paper.

To avoid unfair competition, government departments that are in direct competition with the private sector will be required to charge VAT on their sales.

A new government VAT Unit has identified businesses that should register based on types of business licenses and import statistics, including the TCI revenue mainstay of tourism.

When VAT replaces the current accommodations tax, the effect will only be a slight reduction or increase for tourism businesses, the Green Paper says, but sales other than accommodation and meals will be subject to VAT, such as foreign travel agent sales.

Payments for medical and educational services will be exempt from VAT. However, VAT that providers pay on their purchases cannot be refunded.

All VAT businesses must file monthly reports of taxes paid and collected. If tax collected on sales and services is more than taxes paid, the business pays the difference. If the tax collected is less than taxes paid, the business gets credit that can be refunded every three months.

Businesses that don’t file and pay on time can be fined or even closed temporarily for repeated violations.

When VAT is implemented, businesses won’t get credit for taxes already paid on inventory. The Green Paper says there are three options:

• Depleting stocks to minimum levels
• Free storage at the ports for a short period
• Converting their existing storage facilities to bonded warehouses (this will be done on a case by case basis, and approved by the Collector of Customs).

Businesses also will be required to keep up-to-date books and records of all their transactions. While the Green Paper says that requirement is a strength of VAT, it has come under heavy fire so far in consultation with local businessmen who say it’s too complicated and expensive to implement for many.

Along with the Green Paper comes the launch of the government’s public awareness and education campaign for the introduction of the VAT. That will include discussions in the local media, billboards, posters and brochures, plus radio, television and print media advertising.

Several workshops, seminars and consultations will be held across the islands by the VAT Implementation team under the auspices of the VAT Steering Committee.

That committee is chaired by the Permanent Secretary for Finance and includes the Budget Director, Revenue Counsel and Advisor, the Revenue Controller, the Customs Collector, Strategic Planning and Policy Unit, Government Press Office and the Human Resource Management Directorate. This committee is responsible for providing policy guidelines to the VAT Implementation Team.

For more information, contact the VAT Unit of the Ministry of Finance in Butterfield Square on Providenciales or e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Click here to read the VAT Green Paper