BASSETERRE, St. Kitts – FOLLOWING months of speculation surrounding the possible rate of a Value Added Tax (VAT), Prime Minister and Minister of Finance Hon. Dr. Denzil Douglas announced a 17 percent rate, giving the Federation the second highest VAT rate in the region.
PM Douglas’ announcement of the rate of the new consumption tax comes three months ahead of the proposed November 1, 2010 deadline and was decided upon just Monday (Jul. 5) after considering a number of studies in that area. It was two months ago that the Minister of Finance announced a possible 19 percent rate but, according to him, that would have been too high.
“The Cabinet met on Monday and the Cabinet has taken a decision after considering a number of possible rates that were presented to us, and looking at the report that came from the Ministry of Finance and specifically from the Tax Reform Office specifically looking at VAT, 19 percent we have agreed is too high and so we have settled for 17 percent rate on the VAT for services and goods...” Douglas said yesterday (Jul. 14) at his monthly press conference.
St. Kitts and Nevis is now second to Jamaican only which increased its VAT rate to 17.5 percent earlier this year.
Discussions on the rate of taxation were heated even before the VAT public awareness campaign was launched. Business owners in the tourism sector were particularly advocating for greater relief as the period of prolonged economic crisis had taken a toll on that industry. Douglas announced a lower VAT rate of 10 percent for hotels to replace the existing nine percent for hotel accommodation tax.
“With regard to the hotel accommodation tax, again we have looked at what is operating in the region, we’ve looked at what has been recommended and the government has accepted 10 percent with regard to VAT, using, of course, the necessary tax to be collected on the accommodation at rooms at hotels,” he explained.
At a VAT stakeholders’ consultation session held in early May of this year, 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. However, Douglas informed in a May 19 interview that he was advised that 19 percent “would be the way to go” as many of the countries who charge a 15 percent VAT “are not going to meet their financing gaps”.
It was this gap in the Federation’s finance that led local economist and financial expert Vernon Harris to predict a VAT rate of at least 20 percent in order to “meet federal budget demands”. At this time, however, it is unknown whether the VAT rate will change as the nation sees improved economic conditions.
Additionally, PM Douglas announced that an excise tax will be applied to alcohol and tobacco to reflect greater equity in rising costs of other goods.
“As a result of the VAT, the price of alcohol and cigarettes, left to themselves, would fall. We do not think that this would be responsible government policy…we would therefore intervene by applying an excise tax on alcohol and cigarettes to push these prices upwards,” Dr. Douglas said.
PM Douglas maintains that an assessment of the “spectrum of goods and services” would reveal that VAT will “not fall disproportionately on those who can least afford to pay this tax”. He continues to stress that consumers could expect the cost of living to stay the same or to decrease.
The VAT Bill has already had its first reading in Parliament and is expected to be passed shortly.
