BASSETERRE, St. Kitts, April 26, 2010 (Labour Secretariat) - Prime Minister and Minister of Finance, Hon. Dr. Denzil Douglas has given the assurance to the public that the Value Added Tax (VAT) to be introduced sometime later this year will not increase the cost of living.
Speculation has been rife among citizens and residents of the Federation that hard times are coming with the introduction of the VAT, but Dr. Douglas, in addressing this issue at his monthly press conference on April 21, said that there is no need to be afraid of the implementation of the VAT, which has been introduced in several Caribbean countries.
“I want to re-emphasize that the cost of living will not increase after the introduction of VAT, simply because the cost of living to a large extent is impacted by the cost of goods as a result of the consumption tax and the duty,” Dr. Douglas said.
Several Caribbean countries including Barbados, Dominica, Jamaica, Trinidad and Guyana have implemented VAT, while Belize and Grenada have dispensed with it.
The Ministry of Finance has confirmed that the VAT will replace 12 taxes. These are the Consumption Tax, Hotel and Restaurant Tax, Cable TV Tax, Vehicle Rental Levy, Insurance Premium tax, Export Duty, Public Entertainment Tax, Lotteries Tax Act, Gaming Machine Tax, Telecommunication Levy (IDD Calls) and Parcel Tax.
The Ministry of Finance has also declared that a number of goods will be zero-rated so that these goods would be affordable to ordinary and low-income families. Goods such as milk, infant formula, diapers, rice, sugar, and certain medicines for chronic diseases such as hypertension, diabetes and cardiovascular diseases will not have a VAT.
Dr. Douglas said the implementation of the VAT is part of an eight point OECS Economic Stabilization Plan, which was agreed to by OECS Heads of States in September of 2009.
This eight point plan includes the development of suitably financial adapted programs for each OECS country; fiscal reform; debt management; public sector investment; social safety net programmes; financial safety net programmes; amalgamation of local commercial banks; and rationalization and regulation of the sub-region’s insurance sector.
The implementation of the VAT is part and parcel of tax reform taking place in the Caribbean.
The shocks in the global economy have always impacted Caribbean economies adversely simply because the economies in the Caribbean are small and susceptible to external shocks. Tax Reform in the Caribbean has been largely fuelled by an outside environment that continues to dodge traditional sources of tax revenue, according to economists.
“The Government intends through VAT and other means to increase its revenue by broadening the tax base. A lot of people presently are not paying tax. We believe with the reform in the tax system, we would be able to capture very many more people who should be paying tax.
“In that way of course, if all who are paying now plus those who are not paying, but will then eventually pay, that gives me simple mathematics to be more revenue collected,” Dr. Douglas said.
“It has nothing to do whatsoever with the cost of living.”
Dr. Douglas re-assured reporters at his press conference that the cost of living will not increase.
“We know for certain that on doing the analysis with regard to what the rate of VAT would be based on what it has been in the rest of the Caribbean compared to the Consumption Tax rate it would be less. Therefore if it’s going to be less, the cost of living will not increase,” he said.
The VAT White Paper was approved by Cabinet on April 19, 2010. Consultation with the public and many stakeholders on the VAT will begin with the launch of the White Paper on the VAT.
