TCI in battle over introduction of VAT
(CNS): Officials from the Turks and Caicos Islands government are defending the proposed introduction of VAT in the face of local opposition to the sales tax. The interim British administration currently running the island, after the country’s constitution was suspended amongst a major corruption scandal, says it needs the purchase tax to help it plug the hole created by the previous government’s alleged corruption and mismanagement of public money. Chief Financial Officer Hugh McGarel-Groves said Introducing VAT would strengthen the country’s fragile recovery with a simpler, equitable and stable source of government revenue.
Hitting out against those opposing the tax McGarel-Groves asked this week what alternatives there were to the benefits of VAT and suggested the opposition to it was from those who are currently paying no tax at all.
“Given the difficulties endured by the TCI economy since the collapse of the last government, it is in the best interests of the entire community to ensure that government finances are secure and that it can continue to develop expenditure plans in line with local peoples’ priorities,” the chief financial officer said.
He added that VAT was a proven system across the Caribbean and would be straightforward to administer as a single form of taxation replacing the five different sets that are currently levied in the UK territory.
During Cayman’s own budget difficulties in the wake of the 2009 election, the then Labour government in the UK had suggested that the government here consider the implementation of a tax and the premier had originally indicated his preference for VAT over income or property tax but in the end opted for increasing existing fees.
Speaking in April 2010 during efforts to borrow some $300 million to help balance the budget, plug a government deficit and pay for capital projects, McKeeva Bush was forced to seek permission from the UK, which was pointing towards the need for Cayman to widen the tax base.
Bush said if he had to choose he would introduce a “value added fee” and had indicated that Cayman would eventually be forced to implement some form of taxation. Bush said VAT was fairer because rich people spend more so they will put in more.
The TCI government said it is suggesting VAT not to increase revenue but to simplify the local taxation system. It said the VAT is not an additional tax but will replace several other complicated taxes, such as the Hotel & Restaurant Accommodation Tax, Vehicle Hire Stamp Duty, Domestic Financial Service Tax, Telecommunications Tax and Insurance Premium Tax. The introduction of VAT will also partly replace import duty and start to address what the government said were excessive and unfair benefits some businesses receive via import duty concessions.
“VAT is a broad based tax and will spread the burden across a larger portion of the economy, including the service sectors, which currently pay no sales-related tax,” the government has claimed.
The government in TCI denies that VAT will make the islands less competitive as the proposed rate of VAT will be between 8.5% and 12%, no higher than the majority of regional countries that have rates between 15% and 17.5%. Some four studies have been conducted over the last seven years comparing TCI’s existing tax system with alternatives and they conclude that VAT is the most appropriate type of tax for the country.
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