BASSETERRE, St. Kitts – ALL necessary consultation, education and passage of laws surrounding the introduction of a Value Added Tax (VAT) in the Federation have to be done within the next seven months, as a November 1 deadline for the introduction of the new tax has officially been set.
Prime Minister and Minister of Finance Hon. Dr. Denzil Douglas, in delivering the 2010 Federal Budget yesterday (Mar. 23), spoke officially for the first time on the introduction of VAT as one of the major measures of tax reform to be implemented during this fiscal year.
The detailed announcement came two weeks after Governor-General HE Dr. Sir Cuthbert Sebastian announced that VAT will be introduced later this year, bringing closure to months of speculation.
Discussions about the tax ramped up in late 2008 when former Minister of Finance Hon. Dr. Timothy Harris noted in the 2009 Budget that a Tax Reform Team was established to analyze whether the Federation should consider introducing a VAT and some of the associated technical processes.
According to PM Douglas, that team was able to review reports from the Eastern Caribbean Currency Union (ECCU) Tax Reform and Administration Commission and the Caribbean Regional Technical Assistance Centre (CARTAC), which recommended the introduction of a VAT within the Federation. Cases from other CARICOM countries were studied and after much research the team submitted a White Paper outlining why a VAT should be introduced.
“VAT will form an integral part of the reform process aimed at increasing overall administrative efficiency in the tax system and broadening the tax base to improve its revenue generating capacity. A VAT regime will provide some measure of fiscal stability, as it is capable of generating reliable and consistent revenues for the Government,” Douglas said.
Weaknesses in the Federation’s current tax structure, as outlined in the CARTAC studies, include the existence of many indirect taxes that make for a “complex” tax system. A VAT would streamline the tax system by replacing eight taxes: Consumption Tax, Hotel and Restaurant Tax, Cable TV Tax, Traders Tax, Vehicle Rental Levy, Export and Rum Duty, Telecommunications Levy (IDD Calls) and Parcel Tax.
Along with VAT, an Excise Tax will be implemented on a small range of goods likely to include alcoholic beverages, tobacco products, petroleum products, motor vehicles and aerated beverages.
To encourage the seamless implementation of VAT, PM Douglas promised an intense Public Awareness and Education Campaign would be launched at the beginning of April 2010 and would be followed up by the widespread distribution of information packages and media campaigns.
Workshops and seminars will also be conducted by the Tax Reform Team with the aim of targeting specific interest groups, businesses and individuals.
Douglas set a May 2010 deadline for the passage of the relevant legislation in order to give enough time for the nation to prepare for the new tax. While concerns have been raised about the institutional capacity and administrative training of relevant ministries, Douglas stated that those key components would be addressed during the implementation process.
VAT has been introduced in a number of ECCU member states including Antigua and Barbuda, St. Vincent and the Grenadines and Grenada, and according to Douglas its implementation in St. Kitts-Nevis would “foster harmonization in the ECCU”.
