BASSETERRE, St. Kitts – DAYS before the May deadline for the passage of legislation to impose a Value Added Tax (VAT) in the Federation, Prime Minister and Minister of Finance Hon. Dr. Denzil Douglas has revealed that the new consumption tax could be established at a rate of 19 percent.
While discussions over a proposed rate have topped the agenda of many private sector businesses, the recently launched White Paper on VAT delivered no proposed rate of taxation.
However, in a recent interview with Caribbean Media Corporation (CMC), Douglas announced that a 19 percent VAT seems the most likely and economically feasible option for his government.
“We have been advised that 19 percent may be the way to go...We have been advised further that those countries which presently have a 15 percent rate...are not going to be able to meet their financing gaps [since] 15 percent is too low,” PM Douglas quoted in a CMC article yesterday (May 19).
Given the domestic economic situation, settling on a percentage rate has not been the easiest agreement for regional governments and businesses to strike. Earlier this year in Jamaica the VAT rate was increased to 17.5 percent, currently the highest in the region, and public outcry by individuals and businesses was substantial.
At a VAT stakeholders’ consultation session held two weeks ago at the St. Kitts Marriott Resort, local businesses seemed willing to have a 15-16 percent rate of taxation – the same rate that is applied in Antigua and Barbuda, Barbados, Dominica, Grenada, Guyana and Trinidad & Tobago.
In response however, PM Douglas sought a reaction from businesses to a VAT rate of 19-20 percent, adding that the removal of a nearly 22 percent Consumption Tax would ensure that VAT does not increase the costs of goods and services.
“Remember we are looking at 19 or 20 percent and consumption tax is about 21.5 percent,” he said at that time.
In an April 2010 interview with SKNVibes, economist Vernon Harris opined that for the government to raise the revenue necessary to bridge its financial constraints it cannot impose a tax at a rate of less than 20 percent.
With a 19 percent rate potentially in sight, PM Douglas explained that VAT must be introduced at such a rate that it would not worsen the economic conditions, while also benefiting the government, the private sector and the consumers.
“No one wants to introduce severe measures which will cause greater social dislocation of our people. Therefore, if we are all onboard as stakeholders we should be able to find a rate that is acceptable, that would save jobs for people, would save our people from greater pain and at the end of the day would bring total relief to our country.
“I believe that our people will go the route that the government is advising: look at the options, weigh them very carefully and...let us agree together on a rate that will not bring pain to us later on,” Douglas said at the private sector consultations.
The official rate of taxation is expected to be revealed following the next few weeks of consultation.
