BASSETERRE, ST. KITTS, AUGUST 11TH 2010 (CUOPM) – St. Kitts and Nevis Prime Minister Hon. Dr. Denzil L. Douglas said the Value Added Tax (VAT) being debated in the National Assembly will result in a wider tax base.
“This would greatly enhance equity in the system since instead of depending on a few entities to carry the tax burden it would now be spread over a larger number of entities therefore eventually lessening the liability of taxpayers,” Prime Minister and Minister of Finance, Hon. Dr. Denzil L. Douglas told the lawmaking body and the nation.
“There is clear evidence that the VAT in many countries is generating buoyant revenues and therefore this is a very desirable feature of the Tax. Indeed we are hoping that eventually the VAT will help to finance a gradual lowering of other tax rates throughout the system. However this is dependant upon successful implementation and sustainability of the Tax which would be a function of the compliance rate of businesses which will collect this Tax on behalf of the Government. The self-policing feature of the invoice credit method can potentially mitigate tax avoidance and evasion and improve revenue stability,” Dr. Douglas said.
The Minister of Finance said that the VAT will also consolidate and modernize the tax system, pointing out that a multiplicity of taxes at different rates is inefficient to administer and that the move to VAT would eliminate twelve (12) separate taxes as outlined in the VAT White Paper.
He said another advantage of going along the VAT path at this time is that more than 150 countries have travelled this road before with several alternative VAT laws and experiences to start from which made it easier for St. Kitts and Nevis to devise a system to suit particular circumstances.
“Unlike the personal income tax, the VAT only taxes consumption, not savings and therefore can have a stimulating effect on savings. It is expected that with the introduction of VAT the cost of living will not increase as the net increases and the net decreases in the cost of various goods and services will balance out,” said Dr. Douglas.
For example the cost of goods which were charged Consumption Tax at around 22.5% should decrease as this will be replaced with a VAT at 17%. The cost of some services may however increase where suppliers of these services do not make any changes to their cost structures.
The VAT will also provide a substantial benefit to businesses in the form of additional cash flow as they will be able to have access to the equivalent of the input VAT which they will be able to collect even prior to the goods being sold. Under the Consumption Tax regime businesses would have to wait until their goods are sold to recover the Consumption Tax. Under VAT they can claim the input VAT which they have paid at the end of the month in which it was incurred.
The Minister of Finance said that the implementation of the VAT gives St. Kitts and Nevis a head start in preparation for the erosion of border taxes which has already started and which is expected to intensify as the Federation begin to fulfill its international commitments with respect to CARICOM, the WTO and the EPA.
