Britain insists on imposition of VAT in Turks and Caicos
Published on January 17, 2013
By Caribbean News Now contributor
PROVIDENCIALES, Turks and Caicos Islands — In a letter on Monday to Dr Rufus Ewing, premier of the Turks and Caicos Islands (TCI), Mark Simmonds, Britain’s minister for the Overseas Territories rejected a request for a delay in the imposition of value added tax (VAT) in the TCI and confirmed that the new tax will take effect as planned on April 1, absent a credible alternative.
Following the election of the Progressive National Party (PNP) as the new government last November, Ewing and his finance minister Washington Misick have been seeking a delay of six months in the implementation of the tax.
However, according to Simmonds, a delay in the implementation of VAT would present significant risks.
Britain’s minister for the Overseas Territories, Mark Simmonds
“A delay at this stage would risk undermining the credibility of the government’s commitment to VAT particularly with those businesses that have invested in preparation. And I am not convinced that delay would make it easier for you to find and commit to the introduction of a credible alternative. I fear that a property or income tax would be likely to attract opposition at least as strong as VAT,” he said.
Simmonds went on to say that any such delay would be unlikely to diminish the opposition of those businesses who will have to pay tax for the first time or open their books or lose some of the benefits of what he described as “excessive concessions” granted by previous administrations.
He also pointed out that delaying the implementation of VAT would require the government to cut public spending further than would otherwise be necessary.
“I think you have a choice between pressing ahead with the introduction of VAT from 1 April or making a clear commitment to introducing a credible alternative to VAT such as property or income tax. I should be clear that I believe that, at this stage, the best option for Turks and Caicos is to press ahead with implementation of VAT,” Simmonds said.
Tinkering with the current disparate and unsatisfactory mix of taxes would not address the underlying weakness and unfairness of these and would not offer a credible alternative to VAT, he added.
According to SImmonds, the previous elected PNP government had already decided that VAT had significant advantages over property and income taxes but, nevertheless, invited Ewing to submit a new fiscal and strategic policy statement by the end of January.
“While you are finalising this I expect preparations for VAT implementation to continue at full speed, including investment in planned new IT, so that it can take effect on 1 April,” Simmonds added.
However, Simmonds’ claim that the previous PNP government had endorsed VAT was disputed in a subsequent statement by then finance minister, Floyd Hall.
“That statement is completely false. While it is the case that the former PNP had agreed to explore the option of selecting one of four taxation models being imposed on us by advocates for the Organization for Economic Corporation and Development (OECD), the European Union, IMF and the FCO to obtain compliance with international tax standards in our financial services industry and to achieve revenue sustainability, it was never the case where VAT was selected as a done deal for implementation in the Turks and Caicos Islands by our PNP administration,” Hall said.
The new tax was signed into law during the term of the previous interim administration run by Britain following the suspension of elected ministerial government in the TCI in 2009 as a result of widespread and systemic government corruption during the PNP’s previous term in office from 2003 to 2009.
Unrestrained government spending during those years brought the TCI to the verge of bankruptcy, necessitating a $260 million loan guaranteed by Britain and other measures to enable the territory to balance its budget.
According to the former chief financial officer Hugh McGarel Groves, VAT will be necessary for as long as Britain’s loan guarantee remains in force.
At a press conference on Tuesday, finance minister Washington Misick spoke out again against VAT.
“This is being forced down our throats,” he said. “They are committed to VAT having bought a half-million dollar software program to deal with VAT… this shows that the VAT tax is a issue of their egos making them act.”
While saying initially that he could not reveal the alternative methods of taxation to VAT that his government is considering, Misick then proceeded to reveal them on Tuesday, namely, taxes to be assessed on condominium owners who rent their properties to non owners; a 1 percent increase in the hospitality tax from 11 to 12 percent; a restoration of the higher rate of stamp duty; and a tax on water sports activity by tourists in the TCI, both in Provo and Grand Turk.
Misick estimates this will raise between $15 and $16 million per year and grow the economy of the country.
However, according to some local observers, such measures may increase government revenue but is more likely to be counterproductive to the economy.
Opposition leader Sharlene Cartwright Robinson said in a Tuesday afternoon television appearance that the opposition Peoples Democratic Movement (PDM) continues its position that it also does not favour VAT.
Robinson was not in favour of alternate taxes, however.
“We simply need to police the collection of existing taxes,” she said.