BASSETERRE, St. Kitts – PARLIAMENTARIANS on the opposition benches have noted with great concern that if not prudently implemented, the introduction of a Value Added Tax (VAT) may only worsen the economic situation in St. Kitts-Nevis.
In last week’s budget debate following the March 23 address by Prime Minister and Minister of Finance Hon. Dr. Denzil Douglas where the coming of VAT was announced, opposition members had numerous questions regarding how the new tax would affect personal spending and the overall state of the economy.
Leader of the Opposition and representative for Constituency Nine Hon. Mark Brantley first criticized the government for not informing the public earlier about VAT, as tax officials from both St. Kitts and Nevis had already been working together on the reform. He added that the new tax was not mentioned leading up to the January Federal Elections and although the VAT has now been officially announced, there has been no mention of the rate at which consumers can expect to pay.
“Let me make it clear that at no point was the public engaged in discussions as to whether VAT was the best way to go. We are therefore consulting after the necessary decisions have been made....VAT is now touted as a saviour to rescue us from certain fiscal peril, but I wish however to sound today a note of caution. VAT may not be the panacea for the economic ills we face and may well retard economic activity further unless sensibly and prudently implemented,” Brantley noted.
The Nevisian MP referenced a case study entitled “The Macroeconomic Impact of the IMF Recommended VAT Policy for the Fiji Economy” by Paresh Kumar Narayan, which outlines some of the problems faced by that country with the introduction of VAT.
According to the study, VAT was levied and in 2002 an increase in the rate was recommended by the International Monetary Fund (IMF) in order to “remedy” Fiji’s mediocre economic performance, deteriorating government finances and stagnant investment levels. Narayan’s research revealed that VAT actually led to a decline in investments and a reduction in real consumption and national welfare. Large amounts of tax revenue remained owing to government.
Emanating from the Fiji case study, an alternative to VAT was to upgrade government's tax collecting mechanism, as Narayan deduced that the IMF policy was “misdirected”.
Brantley, in his almost three-hour long response to the 2010 Budget Address, explained that VAT is considered by some to be a regressive tax because the poor are forced to pay more as a percentage of their income than the rich. He warned also that revenues from such a tax are frequently lower than expected due to the difficulties in administration and collection.
He said, “I also point out that VAT will increase dramatically the administrative costs to Government in its implementation and collection, and to the businesses on the island, especially the small businesses who must now keep accurate accounts and records to ensure that VAT is collected from their customers and paid over to the Government tax authorities.”
Parliamentarian for Constituency Five Hon. Shawn Richards argued that VAT may come as an additional burden to taxpayers, as the aim of government is to increase its revenue. He argued that although VAT will replace a number of existing taxes, the net result is expected to be an increase in revenue for the government.
“We are now seeing VAT being mentioned as a cure for the economic problems we are having. In the Budget Address, the PM said that some 10 taxes will be replaced by this one new tax. The impression that was given was that with the removal of these 10 taxes, the cost of living will be less.
With such a debt problem that our nation is faced with, the government will certainly not replace 10 taxes with this one tax resulting in them collecting less revenue. So, the intention is to collect more revenue,” he indicated.
Other Caribbean countries have introduced the consumption tax, including Antigua and Barbuda, St. Vincent and the Grenadines and Trinidad and Tobago. However, according to Richards, these islands’ problems have not been solved by VAT and they still find themselves approaching the IMF for financial aid.
“The PM said only two OECS countries have not implemented VAT: St. Kitts and St. Lucia. But in that same address, he pointed out that most of the other countries have had to approach the IMF because of their economic state of affairs. If VAT is such a good thing, why aren’t these countries seeing economic improvements? Obviously, in spite the introduction of VAT, these countries continued having problems.
“What we really need is better fiscal management of the nation’s resources,” he argued.
As set out by PM Douglas, a widespread Public Awareness and Education Campaign is expected to be launched this coming Thursday (Apr. 1) and by the following month all relevant legislation must be passed in preparation for the VAT.
