Prime Minister Hon. Dr. Denzil Douglas

The Value Added Tax (VAT) legislation is required to be passed by May 2010 followed by its implementation on November 1, says Prime Minister Hon. Dr. Denzil Douglas.

Dr. Douglas, who re-assumed the mantle of Minister of Finance following the January 25th general elections, made the announcement on Tuesday as he delivered the annual Budget Address at parliament. He said that VAT was not new to the Caribbean region and a number of its countries had successfully implemented the broad-based tax system.

"The introduction of a VAT is not unique to St. Kitts and Nevis. 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 PM explained that the implementation of VAT was part of a wider tax reform initiative that would regularize government tax collection by replacing several existing taxes.

"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," he said, adding that an Excise Tax could be implemented "in conjunction" with VAT to offset any significant shortfall in revenue. A new vehicle tax was also mentioned where new vehicles up to two years old, which are not currently subject to the $5000 Environmental Levy, would attract a levy of $1,000. He also informed that a new Corporation Tax Act and Duty Free Stores Act would be drafted as part of the tax reform process and it was his view that the necessary legislation for the former would be passed by the third quarter of 2010.

Public consultation and education on VAT would begin in April, Dr. Douglas informed, accompanied by the circulation of the White Paper, pamphlets, booklets and posters along with radio and television program and publications in the newspapers and on the internet.

The Finance Minister spoke of a Tax Reform Team which has developed a detailed implementation schedule for a VAT with technical assistance from Caribbean Regional Technical Assistance Centre (CARTAC).

"The Tax Reform Team will conduct workshops and seminars targeted at specific interest groups, businesses and individuals. The team 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," Douglas explained.

Dr. Douglas pointed out that VAT is anticipated to provide fiscal stability as an alternative source of revenue for government. Noticeably absent from his oration on the proposed VAT was the identification of an amount that the tax would be levied at. The majority of Caribbean territories charge a standard VAT rate of 15% of the cost of the goods and services.

Being a broad-based tax, VAT can be applied at a low rate and yet have a high yield as it allows for goods and services that had previously gone without tax to incur the levy. According to some experts in the field, in any system involving a VAT there are at least four options available to government: the application of the standard rate, application of a special rate, exemption of the service and zero-rating of goods and services.

The standard rate is usually the highest rate, applied to consumer durables and luxuries including cars, appliances, business equipment, electronic equipment, home furnishings and fixtures, and jewelry. The special rate is normally applied to goods and services which it is believed should contribute to the revenue but whose continued viability could be seriously impaired by application of a high tax rate. Some goods and services would be exempted from the VAT including items in the basic needs basket of goods, prescription medicines and senior care.

It is expected that the Customs Department will collect VAT paid on imported goods while the Inland Revenue Department would collect the tax paid for local consumption.