BASSETERRE, St. Kitts – FOLLOWING last Thursday’s Prime Ministerial announcement of a rate of Value Added Tax (VAT) to be introduced on November 1, the St. Kitts and Nevis Chamber of Industry and Commerce (CIC) has once again raised major concerns about the “hurried” timeline.
On Wednesday, July 14, with just about three more months on the VAT implementation calendar, Minister of Finance Hon. Dr. Denzil Douglas quenched long-standing speculation of a possible VAT rate, announcing a rate of 17 percent. Though this announcement was welcomed by the private sector grouping as it guides public discussion, the CIC has noted possible challenges if the new tax is to be introduced in November 2010.
“The Government has had years of preparation for VAT and yet insists upon introducing this tax on the private sector which is expected to be in a position to implement systems for the collection of the tax within a short period of time,” an official CIC communiqué stated.
The report reads that the CIC appreciates the need for fiscal reform and raising necessary revenue, especially now that the Federation moves into the OECS Economic Union. However, the Chamber report notes that there are “valid reasons” to be concerned about the effects of introducing VAT, especially at its proposed time.
Introducing VAT at that time could create serious distractions which trading businesses could ill-afford, according to the CIC, as the prevailing economic conditions are already challenging. Added to this, the Chamber is of the view that the introduction of VAT may cause an inflationary transition, especially as November is a time when most businesses have the highest stock levels on hand in preparation for the Christmas Season.
“These goods would have already been imported under a consumption tax regime. To date, the Chamber has no assurances that appropriate arrangements are in place to deal with the pricing of goods on which consumption tax has already been paid and which attract VAT upon been sold.
“This is severely inflationary as consumers will be required to pay both VAT and consumption tax on the same goods. This is punitive to consumers and uncompetitive for local businesses and could have a tremendous fall-out for both the consumers and the Government,” the report stated.
The Chamber also foresees a further contraction of the local economy if this situation becomes unmanageable.
Other concerns include the extensive and expensive work that businesses have to undertake in installing new tax software, a process that may experience even further delay as the VAT Bill has only had its first reading in Parliament.
The Chamber maintains its earlier suggestion to delay the introduction of VAT until the first quarter of 2011, which should, at the very least, facilitate proper implementation by Government, more adequate preparation by the business houses, and a cleaner system of accounting.
This has been the cry of the Chamber since April of this year when PM Douglas had revealed the blueprint for the introduction of the new tax. Public consultations were to begin in April, legislation passed in May and the VAT introduced in November.
However, these stages were delayed and, according to the CIC, a delay in introducing the tax would compensate for the fact that the government “failed to keep its own schedule”.
It is uncertain whether the date will be reconsidered in light of the Chamber’s concerns, but according to a July 14 press statement from the PM’s Office, there is “no compelling reason to postpone VAT introduction”.
