Caribbean Is Urged To Adopt VAT

by Amanda Banks, Tax-News.com, London

12 August 2010

Barbados’ former Prime Minister and eminent Caribbean Statesman, Owen Arthur, has described value-added tax (VAT) as the best option for the Caribbean region in the age of trade liberalization.

In a recent interview with Erasmus Williams, press secretary to the Prime Minister of St. Kitts and Nevis, Arthur said he was surprised in particular that St. Kitts and Nevis had deferred the introduction of a VAT in the twin-island Federation for so long, stating that the islands are in the same situation as Barbados was, when it decided on the introduction of VAT. Arthur said he supported the introduction of VAT in Barbados before he became Prime Minister and when he was the Opposition Spokesman on Finance.

“We are living in an age of trade liberalization. What it means specifically, if you take that concept and break it down, is that, to be part of a Caribbean Single Market and Economy (CSME), we have had to remove import duties on goods coming from the rest of the Caribbean and also all Caribbean countries that are part of the CSME have had also to reduce their top rate of import duties from 45% to 20% to implement what is called the Common External Tariff (CET). We (Barbados) had to do that in 1998.” He explained that “in order to compensate for the loss of that revenue Barbados introduced VAT in 1997.”

”Subsequent [to the introduction of the CET] the region has become more and more deeply involved in relationships that require the removal of import duties,” the former Barbados prime minister said.

“Recently [the region] entered an Economic Partnership Agreement with Europe, which is now about to take full effect as it had a three-year grace period. What that EPA involves is the removal by the region, and economies like Saint Kitts and Nevis, of import duties on goods coming from Europe that historically have carried an import duty.”

“The region is also negotiating similar arrangements with Canada and I would imagine that other countries would sooner or later ask the region to put in place new trade arrangements with them; so in the age of trade liberalization, countries that have historically depended on import duties for a large part of their revenue now have to remove those import duties and you have to replace them with something,” he added.

The former Barbados leader said the VAT is the best of a number of options available. He noted in particular that VAT could be implemented in such a way as to liberalize exports to make regional economies more competitive.

“[St Kitts and Nevis could] also target it to allow the sectors that it feels are areas of activities that are worthy of exemption from taxes to be exempted from taxes,” he said. “More to the point, a VAT would bring greater continuity with respect to revenue inflows for the islands, shoring up its fiscal position." Concluding, Arthur noted that the broader the implementation of VAT, the lower the rate could be set.

St Kitts and Nevis plans to introduce VAT from November 2010.

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