|New taxes proposed to balance government budget||| Print ||
|Written by Richard Greenfirstname.lastname@example.org|
|Thursday, 24 February 2011 13:08|
New 10-percent taxes on electricity, water, and banking and insurance services for two years, followed by the introduction of valued-added tax to replace most taxes, are among proposals to increase revenue and balance the government’s budget by March 2013.
Other two-year revenue sources proposed by interim government consultants Jorge Baca and Paulo dos Santos include an additional 4-percent customs processing fee and adjusting the myriad of government fees and charges.
Also proposed is the permanent elimination of repatriation and work permit fees, which would be replaced by a 10-percent tax on wages to be collected monthly for the government through the National Health Insurance Program, which already monitors and collects premiums from work permit holders.
The temporary two-year taxes are proposed because it will take two years to implement VAT, which “is not an easy tax to implement,” Baca said. When VAT is imposed in two years, it would replace the temporary two-year taxes, customs duties and all sales taxes, resulting in an approximately 50 percent reduction in all import duties.
These and other changes could balance the budget by 2013, assuming an overall average 4 percent growth rate, Baca said. Tourism has suffered least in the economic downturn and will lead the way out, while construction won’t likely return significantly for two years, he said.
Baca said leaving the current revenue structure in place is not an option because the TCI’s economy is very dependent on the U.S. economy, which is recovering slowly. That, plus a glut of hotel rooms and condominiums and the cost of servicing the country’s massive debt, would make it impossible for the country to pay its bills.
The consultants made their initial presentation to a number of stakeholders during four invitation-only meetings held Feb. 17-19 with the consultants, the governor’s Chief Economic Advisor Brian Titley and Finance Director Delton Jones. Media representatives were invited, and the meetings were aired on Radio Turks and Caicos.
After the consultation is complete, proposals will be revised and presented to the Consultative Forum and governor’s Advisory Council before the governor makes a final decision.Among the details not yet decided is how to keep increased taxes from putting more economic pressure on the poor.
Titley said limits can be set so that lower income people and small businesses will not be hit with the taxes, especially the proposed 10-percent tax on electricity and water. For example, Baca said that in Jamaica, those using less that 400 kilowatt hours of electricity a month are not be subject to the tax.
Similar thresholds also are used in VAT, which is imposed on large businesses that have accounting systems in place to deal with the record keeping required, the consultants explained. Small businesses would not have to pay VAT but could not do business with VAT taxpayers unless they too paid the taxes.
Eddinton Powell, CEO of PPC Ltd., said that the utility was not aware of the proposed electricity tax, which would be a first in the TCI. PPC is not sure that its current computerized business system can process such a tax, which would increase electricity bills, he said.
Not only would consumers pay higher electric bills, the cost of everything would likely go up because of the increased cost for businesses.
“With the refrigeration and freezer equipment required to maintain food quality, this would add to our present cost. As with any retail establishment, some of this cost would be passed along to the consumer in the price of product as it cannot be totally absorbed. We continually seek to find and upgrade our equipment to be as cost efficient as possible.”
Neither the Providenciales Chamber of Commerce nor the Turks and Caicos Hotel and Tourism Association have had a chance to hear and comment on the proposals.
“The chamber has requested an audience with (the government) consultation team on public finances so that our members can be made aware of what (the government) is proposing and the possible impact on business,” said chamber President Tanya Parnell. “We are listening to the proposals as the consultation process is not over as yet.”
“The business community supports any measures put in place to enhance the efficiency of the pubic sector and the reduction of cost and time in doing business with government. Our members look forward to an audience directly with (government) financial functionaries and advisors so that any reforms are practical and workable in this climate.”
Washingon Misick, CEO of the Alexandra and Prestigious Properties, said he personally supports VAT.
“If a proper system is put in place including a way for people to pay tax online, it could contribute significantly to further reductions in civil service administrative costs.”
However, he said he was against a 10-percent tax on electricity and water. “I believe we should continue to look for ways to increase revenue both in the short and long term on products that are not going to increase the burden on the man on the street,” Misick commented.
The U.K. Department for International Development has provided for up to $260 million in loan guarantees for up to five years, but only if the government can achieve a budget surplus by March 2013.
The European Union is paying for the current revenue study.
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