|Government responds to VAT skeptics||| Print ||
|Written by Richard Greenemail@example.com|
|Wednesday, 13 June 2012 18:15|
Implementing value-added taxes in the Turks and Caicos Islands will not increase the tax burden on consumers or make the country less competitive, the interim government says in response to growing opposition to the tax set to begin in April 2013.
Those questioning VAT believe that government is rushing into it without sufficient study and should postpone it for a year until all the details are revealed and worked out.
In a 14-point question-and-answer statement June 11, government points out that VAT is not a new idea in the TCI. It was first recommended in the TCI’s 10-year Development Plan in 2005.
After the U.K. suspended elected government in 2009 when the country was near bankruptcy, the interim government commissioned a study to examine revenue sources. Economist Alan Roe said the then existing tax system that was dominated by import duties, land transaction taxes, accommodations tax and work permit fees was hit hard by the global economic recession, and he recommended VAT as more reliable in such rough economic times.
A European Union Report in 2010 also recommended VAT as the best long-term tax option for TCI. The Hutton Report by the Caribbean Regional Technical Assistance Centre (CARTAC) in 2011 calculated the VAT rate ranges and other parameters required to maintain existing government revenues.
The Ministry of Finance’s 23-page Green Paper published in April has been the subject of consultations with many different groups during some 20 meetings over the last three months, government said.
A June 11 meeting on Providenciales turned into a testy confrontation between government Chief Financial Officer Hugh McGarel-Groves and some long-time residents who run businesses that sell services, not goods that are imported and will be subject to customs duty and VAT. McGarel-Groves’ comments on some of their concerns prompted the crowd to walk out of the meeting.
Professionals like lawyers, architects, engineers, contractors and watersports operators earning more than a not yet determined income threshold will be subject to VAT. But while the government has given examples of how VAT might affect businesses that import goods, nothing has been said about how VAT on service businesses would be administered.
The June 11 statement said imposing VAT is “an issue of parity — why should one business pay tax and another of equal size not pay tax merely because of the sector it operates in?”
Construction professionals like architects and engineers complain that they already face unfair competition from the same off-island services that aren’t subject to on-island costs like business licenses and work permits fees, a situation which will only get worse when they have to add VAT to their fees.
The Turks and Caicos Society of Architects Surveyors and Engineers (TCASE) presented a position paper June 11 to McGarel-Groves and other government officials suggesting that construction professionals be zero rated for VAT. Instead, development fees should be increased for foreign professionals, and a “development duty tax” based on construction cost rates per square foot should be created to tax construction professionals fairly.
Simon Hutchings of TCASE was not encouraged with government officials’ response.
“In short, we felt our concerns and suggestions fell on deaf ears as far as the CFO and the VAT Unit representatives were concerned,” Hutchings told an anti-vat group June 12. “I will say that Ms. Anya Williams (permanent secretary of Finance) who also attended the meeting, after we had laboured the issues outlined, expressed some sense of appreciation of their importance and relevance. Whether these issues get to be discussed among her colleagues and given any weight remains to be seen.”
Government points out that many businesses in the past have been granted “excessive, unnecessary and unfair” concessions from import duties. When those businesses have to pay VAT, some of that lost revenue will be recouped by government.
“This is all about widening the tax base, creating more stability in government revenues and a fairer tax system, with no concessions offered on VAT and reduced import duty concessions (by reducing import duty rates),” government says.
Government estimates the VAT rate will be between 8-12 percent, ideally no more than the current 11-percent hotel and restaurant accommodation tax. While there is no guarantee that VAT won’t be increased by future governments, government says “sufficient consultancy work has been done to ensure planned revenues from VAT will be achieved.”
Of the 12 Caribbean countries that have introduced VAT, only the Dominican Republic (8 percent) and Haiti (10 percent) have rates below 12 percent, government says. The majority of the others have set rates between 15-17.5 percent.
As for the impact on prices, government cited examples in which the 30-percent duty on an imported item would be replaced with a 20-percent duty and a 10-percent VAT, making little difference in the cost of goods imported.
However, it has not been decided if all duty rates will be reduced by the same percent VAT that is implemented. For rates that are not reduced by the same percent, prices of those imported goods would go up.
To protect the poor from increased prices, essential food and household items will be exempt from VAT, along with health care and educational supplies, government says.
Another complaint is that VAT will be too complicated and costly for businesses to implement. Government says the 300-500 businesses targeted for VAT are large enough and will already have the capacity to implement VAT and maintain the required records.
While some fear that VAT will be lumped on top of existing taxes, government says VAT will replace the hotel and restaurant accommodation tax, vehicle hire stamp duty, domestic financial service tax, telecommunications tax and insurance premium tax.
Government also says it can handle VAT administration, employing 21 trained staff, plus employees of a larger group of trained VAT staff in Customs. “This would see one VAT unit person for every 20 or so VAT registered businesses in TCI,” government says.
The governor’s Advisory Council and the Consultative Forum are expected to review the VAT ordinance before the governor enacts it in July.
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