VAT to replace several taxes, public consultation begins in April, Prime Minister Douglas announces in Budget Address

St. Kitts and Nevis Prime Minister and Minister of Finance, Hon. Dr. Denzil Douglas delivering the 2010 Budget Address in tghe National Assembly on Tuesday 23rd March 2010

ST. KITTS, MARCH 23rd 2010 (CUOPM) – St. Kitts and Nevis has announced November 1st 2010 as the date for the introduction of Value Added Tax (VAT) in the twin-island Federation.

Delivering the 2010 Budget Address in the National Assembly on Tuesday, Prime Minister and Minister of Finance, Hon. Dr. Denzil L. Douglas said there are too many indirect taxes at different rates that make the system complex and it will replace several taxes.

“The current tax system promotes cascading of taxes or double taxation of goods. The ECCU Tax Reform and Administration Commission in fact recommended that all indirect taxes within the sub-region be replaced by a VAT. A VAT would streamline the tax system by replacing the Consumption Tax, Hotel and Restaurant Tax, Cable TV Tax, Traders Tax, Vehicle Rental Levy, Export and Rum Duty, Telecommunications Levy (IDD Calls) and Parcel Tax,” said Prime Minister Douglas.

He said that a Public Awareness and Education Campaign for the introduction of the VAT is scheduled to begin in April 2010.

“This will be accompanied by the circulation of the White Paper and several pamphlets, booklets and posters which the public and potential taxable persons can refer to from time to time. There will also be radio and television programmes as well as publications in the newspapers and the internet,” said Dr. Douglas.

He said that a Tax Reform Team will conduct workshops and seminars targeted at specific interest groups, businesses and individuals and will also be available to meet with members of the general public to answer any question and address any concern that they may have.

“Potential VAT and Excise taxpayers will be identified and provided with application and registration forms. Registered businesses would be required to adopt proper accounting standards for the collection of VAT. The Tax Reform Team will design a series of advisory visits targeted at registered businesses to ensure that they understand their book keeping requirements and provide assistance to ensure that their operations are VAT compliant,” said the Prime Minister and Minister of Finance.

Dr. Douglas said that another important part of the process is the passage of the relevant legislation and it is imperative that the legislation be drafted and enacted several months before the introduction of the tax to allow for meaningful consultation on the specific impact and operation of the VAT and facilitate timely registration of VAT taxpayers as well as effective dissemination of information to taxable persons and the general public.

VAT legislation is to be passed in the National Assembly by May 2010.

He said that the proposed VAT must be seen as an opportunity to completely reform the existing tax structure and VAT will apply to many services which hitherto have not been bearing their fair burden of responsibility in the country even though they are full beneficiaries of the fruits of a burgeoning economy.

“It is highly anticipated that this measure will improve the efficiency in the tax system, add some degree of equality and fairness and also provide fiscal stability as an alternative source of revenue for Government away from its heavy dependence on Taxes on International Trade. Mr. Speaker, we therefore expect that, provided all of the consultations, discussions and training exercises are completed as planned, we will introduce the VAT by the beginning of November 2010,” said Dr. Douglas.

As Minister of Finance, he invited all stakeholders, interest groups, the business community, churches, taxpayers and the wider public to participate in the discussions, debates and consultations.

“It is your responsibility to be informed of all the issues and to make valuable contributions to the design of a VAT for the Federation in order to facilitate a successful implementation,” said Dr. Douglas.

In reviewing the issue of Tax Reform, which is the most comprehensive of the measures which will be undertaken in 2010, Dr. Douglas noted that in the 2009 budget address, it was announced that the Government of St. Kitts and Nevis had established a Tax Reform Team within the Ministry of Finance to analyze whether the Federation should consider introducing a Value Added Tax (VAT) and to examine the technical issues of implementing a VAT within the Federation.

He said that the technical team reviewed reports from the Eastern Caribbean Currency Union (ECCU) Tax Reform and Administration Commission, as well as from the International Monetary Fund (IMF) through the Caribbean Regional Technical Assistance Centre (CARTAC) that have recommended the introduction of a VAT within the Federation.

In addition, the team has travelled to other CARICOM countries with the objective of evaluating the operation of a VAT in small open economies like that of the Federation. The Team has also studied our Tax System in depth in light of the environment in which we are now operating and the developmental goals of our economy.

The Team, after extensive research and analysis, has produced a White Paper outlining why a VAT should be introduced within the Federation and elaborating on the technical issues relating to its design in light of the uniqueness of the economic and social environment.

“Faced with the external constraint of lower revenues from Taxes on International Trade, the Government of St. Kitts and Nevis, after careful consideration of the various recommendations, has decided to embark on a comprehensive Tax Reform Programme and the implementation of VAT will form an integral part of the reform process aimed at increasing overall administrative efficiency in the tax system and broadening the tax base to improve its revenue generating capacity.

“A VAT regime will provide some measure of fiscal stability as it is capable of generating reliable and consistent revenues for the Government,” said Prime Minister Douglas, who added that in many developing countries, like St. Kitts and Nevis, the tax base is narrow, so governments must rely on relatively high tax rates to generate revenue.

“Fortunately, we have managed to keep our tax rates relatively low and attractive notwithstanding our small size, but we must enhance the coverage of our taxes if we are to continue to keep our tax rates sufficiently low to attract investment and foster productivity. Successfully reforming our tax system will involve shifting from a reliance on a narrow international trade base plus a limited domestic production base to a broader consumption base. This is precisely what a tax like the VAT will do,” said Dr. Douglas.

“To offset any significant shortfall in revenue due to the introduction of a VAT at a lower rate, an Excise Tax is often implemented in conjunction with VAT. The Excise Tax is normally limited to a small range of goods such as alcoholic beverages, tobacco products, petroleum products, motor vehicles and aerated beverages,” said Minister of Finance.

He said that the introduction of a VAT is not unique to St. Kitts and Nevis as a number of other Caribbean countries have implemented or are considering the implementation of a tax similar to VAT.

Jamaica, Barbados and Trinidad and Tobago have implemented VAT with positive results for several years. Belize, Dominica and Guyana have also introduced a VAT since early 2006. Our fellow OECS countries such as, Antigua and Barbuda, St. Vincent and the Grenadines and Grenada have recently introduced VAT, while Saint Lucia is currently working on the implementation of VAT within the next year. The implementation of VAT in the Federation will foster harmonization in the Eastern Caribbean Currency Union.

He said that the Tax Reform Team, with technical assistance from CARTAC, has developed a detailed Implementation Schedule for a VAT. The implementation process for the introduction of VAT has a number of key components including Publicity, Public Consultation and Education; Enactment of VAT & Excise Tax Legislation; Institutional and Capacity Building of Staff Systems and Procedures; and Taxpayer Registration and Training.