Government outlines new tax measures in near billion dollar budget

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KINGSTOWN, St. Vincent, Feb 6, CMC – The St. Vincent and the Grenadines government has announced a series of tax measures including a “rainy-day fund” it said had been lauded by the International Monetary Fund (IMF) and the World Bank.
Finance Minister Camillo Gonsalves, delivering his first ever national budget to Parliament on Monday night, said that nationals would benefit from a reduction in the tax burden, while a Climate Resilience Levy will be imposed on visitors.
Gonsalves, who became finance minister last November, outlined the fiscal measures that will accompany the EC$993.5 million (One EC dollar=US$0.37 cents) budget that got the nod of legislators, minus of the opposition last week.
The budget represents a 1.7 per cent increase over the approved 2017 fiscal package and includes the first surplus in years.
The 2018 budget is comprised of recurrent expenditure, inclusive of Amortisation and Sinking Fund Contributions of EC$776.8 million and capital expenditure of EC$216.6 million. The Ralph Gonsalves government is anticipating that this year’s budget will be financed by current revenue of EC$62.6 million and capital receipts of EC$371.8 million.
Gonsalves told legislators that the change in the tax regime will result in the government losing an estimated EC$12 million in revenue, which he said the authorities would seek to recoup by clamping down on tax defaulters.
“The government is committed to reducing the tax burden on Vincentians while simultaneously ensuring that those who flout our tax laws are given an opportunity to choose between regularising their arrears or facing the full range of legally available enforcement measures.
“Additionally, we intend to implement a series of legislative and administrative enhancements to our tax-collection apparatus to optimise efficiency and fairness,” Gonsalves said.
The budget, which was presented in the absence of opposition law makers, will also allow for introduction of a value added tax (VAT) on domestic electricity consumption at 150 units rather than 200.
Gonsalves announced that the standard rate of company taxes will be reduced from 32.5 to 30 per cent, resulting in loss revenue of EC$5.1 million.
He said the marginal rate of personal income tax will also fall by 2.5 percentage points to 30 per cent, resulting in the government foregoing an estimated EC$4.2 million in revenue this year.
Gonsalves said that these rates of taxes were 40 per cent when the Unity Labour Party (ULP) administration came to office in March 2001.
The income tax rate for hotels has been reduced from 30 to 29 per cent and Gonsalves said “this reduction and the special rate for hoteliers is a tangible indication of this government’s continued prioritisation of local hotel growth and development”.
The government also announced that it would raise the standard reduction for personal income tax from EC$18,000 to EC$20,000.
“This means that the first EC$20,000 earned by Vincentians will not attract any income tax,” he said, noting that when the ULP came to office, only the first EC$12,000 was exempt. He said the measure would result in an EC$2.7 million decline in revenue
“These measures continue the commitment of this government to provide economic stimuli via tax reductions and to improve, in practical and tangible ways, the condition of the Vincentian worker. Nationally, the lowering of the tax rate and the raising of the threshold will cost the government approximately $12 million,” he said.
Gonsalves said that prior to 2009, the first full year of the global economic crisis was the last occasion on which some tax relief was provided for the workers and the private sector in respect of profits and personal income tax.
“An internal analysis was conducted and it was concluded that it is time once more to do so. This is accessed to be the occasion for this substantial tax relief,” he told legislators, noting that in total, the government will lose an estimated EC$12 million in revenue due to the tax reductions.
Gonsalves said that as of May 1, this year, the government will reduce the kilowatt threshold for VAT from 200kWh to 150kWh.
“This means that, all VINLEC domestic consumers who consume 150 units or more; just 36 per cent of VINLEC’s domestic customers will now pay VAT.
“This adds only 13 per cent or so of consumers to the potentially ‘vatable’ list. The poor do not consume 150 units per month; so, they would still not pay the VAT. The VAT is payable only on the basic charge, and is not paid on the fuel surcharge,” Gonsalves said.
He said the measure is expected to provide an estimated one million dollars in additional revenue annually but the government anticipates that as consumers continue to implement more energy efficient measures in their households, the level of electricity consumption would decline, thus reducing the number of domestic customers who will fall within the VAT threshold.
The government has also announced that effective May 1, it will increase by EC$1,000 the surcharge on motor vehicles older than four years old. It said the measure should generate EC$1.2 million in revenue.
The government will also ban, effective May 1, the importation of used motor vehicles that are over 12 years old and Gonsalves said that over the years, the importation of used cars older than four years into St. Vincent and the Grenadines had increased tremendously.
“The phenomenon has increased traffic congestion and the number of derelict vehicles left abandoned along roadways. For some time, we have resisted taking action in limiting the age of vehicles being imported; the time has come to address this,” he said.
In explaining the right dollar per night Climate Resilience Levy imposed on stay over visitors as of May 1, 2018, the finance minister told Parliament that the Contingencies Fund established by last year’s budget was capitalised by increasing the rate of VAT from 15 to 16 per cent.
He said over the eight months of its operation last year, the levy capitalised the fund to the tune of EC$6.75 million and that this year, the government hopes to collect a further EC$11 million through the fund.
Gonsalves said that international financial institutions such as the International Monetary Fund and the World Bank have lauded the decision to establish the “rainy-day fund”.
“However, they have urged the government to seek out additional means to increase the inflows to the Contingencies Fund, given the countries vulnerability to increasing intense adverse weather events and fiscal risks they pose.
“As a prudent and responsible government, we have heeded this advice,” Gonsalves said noting that the fiscal measures being implemented this year have been “judiciously crafted to support the government’s social and economic development agenda over the medium term”.

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