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| VAT Rate Revealed |
| By Sheena Brooks |
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St. Kitts and Nevis’ new Value Added Tax (VAT) system, scheduled to be implemented in November 2010, has been set at a rate of 17%.
Prime Minister and Minister of Finance Hon. Dr. Denzil Douglas made the long-awaited announcement on Wednesday (July 14) during his monthly press conference.
“The Cabinet met on Monday and has taken a decision after considering a number of possible rates that were presented to us. Looking at the report that came from the Ministry of Finance, specifically from the Tax Reform Office specifically looking at VAT, 19% we have agreed is too high, so we have settled for 17% rate on the VAT,” he revealed.
Dr. Douglas went on to say that there is a list of good and services which are zero-rated, and some which are exempted from VAT. Special consideration was given to the hotel industry.
“With regard to the Hotel Accommodation Tax, again we’ve looked at what is operating in the region, we’ve looked at what has been recommended, and the government has accepted 10% with regard to tax to be collected on rooms at hotels,” he said.
The St. Kitts Hotel and Nevis Hotel and Tourism Association (HTA) Manager Michael Head had informed this media house in April that his organization had made a plea to Government to have a special rate for the already cash-strapped hotels and restaurant on the twin islands.
“We met with the government and tax reform officials and made a plea that the rate, as it applies to hotels, not be more than 9%. We believe that anything higher will be a disaster to the industry, as hotels would have to raise their accommodation and restaurant rates,” Head said.
The introduction and operation of VAT, the Prime Minister contended during his press conference, will not be a burden on the small man, as measures will be in place to prevent such an eventuality.
“Small shopkeepers and others with less than $150,000 will not be required to either collect or report on VAT. The items on which people depend in their everyday lives like milk, infant formula, medicines for chronic diseases, and also medical services and so on will not be affected by VAT; neither will bus fares, local produce, etcetera, be involved in VAT. This government has, and will continue to, put in place buffers to ensure that VAT will not fall disproportionately on those who can least afford to pay this tax. This Labour government will ensure that VAT will not fall disproportionately on those for whom we established Social Security; for those whom we established free secondary education; for whom we have established all of the other social services that have been essential to our people’s upward mobility,” Dr. Douglas said.
During the press briefing, The Observer representative pointed out that at 17% the new VAT was higher than 12 of the 13 existing taxes it was set to replace. The Telecommunications tax is currently at 5%; the Traders tax, 3% (in excess of $8000); the Gaming tax is $1 per day; the Vehicle Rental Levy, 5%; Cable tax, 5%; Lottery tax, 10%; Insurance Premium tax, 2%; Hotel and Restaurant tax, 9%, etcetera. The journalist then asked Dr. Douglas to explain his assertion that the cost of living would “go down” after VAT was implemented.
“The price of many goods will fall as a result of VAT; the price of some also will rise; others will stay about the same. My government, however, will exercise its prerogative to adjust those prices we deem not to be in the public good.
“You are not just looking at the VAT on taxable items, but you also must consider within the context of the cost of living those items which are zero-rated, and those which are completely exempt. You have to look at the full spectrum of goods and services. You’ve mentioned a few services which are lower than 17%, but what about those services and goods today which are in fact higher than the zero percent - and the exemptions, you have to bring those into the picture as well,” he responded.
Opposition Leader Hon. Mark Brantley said Dr. Douglas had no choice but to have made the announcement when he did. When the VAT Bill was given its first reading in the National Parliament on June 30, with the rate excluded from the lengthy proposed legislation, Brantley had described it as a “travesty”.
He had stated that the government’s avoidance of revealing the critical piece of information could have been an indication of a high VAT rate. He also indicated that a VAT rate of 19 - 21% was the popular opinion amongst financial and business pundits.
Shortly after the Prime Minister’s disclosure, The Observer spoke with the Concerned Citizens Movement parliamentarian, who reiterated his previous opinion that Dr. Douglas would have pulled the VAT rate “out of his back pocket”.
“The Prime Minister had no choice. He was put under a lot of pressure not just by the Opposition, but also by public opinion. Everyone understood that this cloak and dagger approach to something as serious as the rate of a new tax was simply inappropriate. I am not surprised that after the Chamber event on Saturday night that he would have announced what he must have known for some time now, what the rate was going to be.”
Brantley said that even at 17%, the VAT rate was too high, though it was lower than what the prevailing conjecture had put it at.
“It is also obvious that based on other statements he had made they were considering a rate that was much higher, so I credit public opinion and Opposition for bringing that rate down from the 19 to 21% range that was actively being considered. I think even at 17% it is high and would certainly put us as one of the highest in the region,” he declared.
The VAT broad-based tax system was announced in March of this year and is scheduled to be implemented on November 1st. |
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