VAT Consultation Officials

Based on inferences made at a recent Value Added Tax (VAT) consultation, the rate for the new consumption-based tax could be as high as 19 or 20 percent on the cost of the goods or services.

Minister of Finance, Prime Minister Hon. Dr. Denzil Douglas chaired the meeting attended by various private and public sector stakeholders.

Financial Secretary Janet Harris gave the public its first inkling as to a proposed VAT rate when she said it would likely be higher than the average regional rate of 16%.
"We have had a study conducted on the VAT rate and we are awaiting the formal report but u must tell you that in the region, the VAT rate is averaging 16 percent; it moves between maybe 15and 21 percent. The recommendation is that we should go higher than the average rate," she announced.

She explained that in countries where a 15% VAT rate, it was projected that their government revenues would be significantly impacted in 2010 and 2011 and as such St. Kitts-Nevis should learn from that formula.

"From what is taking place, if you look at the falloff in our revenues in 2009 and the first quarter of 2010 then we have to evaluate the situation and see what is a realistic rate at which the implementation of the VAT would be revenue-neutral. I'm not even talking about making a contribution to debt service; I'm speaking about making the introduction of this tax revenue neutral so that we don't lose any revenue," she said.
Harris went on to inform that if a compliance rate of between 80 and 90 percent could be achieved, then a lower rate of VAT could be considered.

"If we are going to have everybody on board and the businesses when they collect the government tax they're not going to hold it and keep it in their coffers and use it, but they are going to turn it over to the Inland Revenue Department so that we can use it to support the government's budget, then we may be able to get away with having a lower rate.

But if based on past experiences with other taxes if the compliance rate is going to be 50 percent then of course we have to look at the higher rate."

The Financial Secretary was challenged about figures relating projected future revenues under VAT but she refused to indicate what rate was used in those calculations.

Hotel and Tourism Association Manager Michael Head again raised the issue of a special rate for the hotel and restaurant industry and an April 2011 implementation date for the sector as opposed to the national November 1, 2010 date.

"The hotel industry is in a serious state with average occupancies for 2009 showing 31.6 percent. At this time ,with no hope of recovery until at least late 2011 the very last thing we would need is a tax that would increase the price to our consumer," he said. Head added that the introduction of VAT after hotels had already contracted rooms at the pre-VAT rate would leave the hotels to bear the burden of the difference in price and that would be disastrous.

"We would therefore ask that VAT be implemented on the first of April 2011 when the season would be finished."

Harris said the hotel industry was not the only sector suffering financially based on the current global economic crisis.

"Not only is the Tourism sector suffering but all our revenues are down. We do not want our tourism sector to be non competitive, it is not going to benefit anyone of us so we are looking very carefully at that rate to make sure that what we do with respect to this sector continues to enhance and helps us to grow the sector."

Representatives from the manufacturing, retail, and finance sectors also raised issues regarding existing stock, hire purchase and enforcement of punitive measures for tax-related offences.

Prime Minister Douglas asked the more than 200-member audience what they thought the VAT should be implemented at. After the majority resoundingly said 15 to 16 percent, the PM asked for a reaction to a VAT rate of 19-20%. He also referenced this figure when explaining how the cost of goods and services would not increase under VAT as it would replace the existing consumption tax of about 22%.
"Remember we are looking at 19 or 20 percent and consumption tax is about 21.5%," he said.

Dr. Douglas noted that although the VAT White Paper had already been drafted, it represented proposed legislation which was subject to change following the consultative period.