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TCI Interim Government Announces Fresh Tax Hikes

by Amanda Banks,, London

25 November 2011

The Turks and Caicos Islands interim government has announced new tax hikes aimed at reducing the budget deficit, which has increased on the back of the territory's political and economic problems.

The announcement adds to measures introduced in April 2011, in the Budget for FY2011/12, in which the tax burden on islanders and the financial services sector was significantly hiked.

The measures are as part of a major overhaul of the Turks and Caicos Islands' fiscal regime following the British government's intervention on August 14, 2009, after an enquiry reported that there was a "high probability of systemic corruption" being perpetrated, allegedly in particular by the island's former Premier Michael Misick. At the time, the British government assumed control of the island's affairs, removing its elected premier, cabinet and assembly, and suspending much of its constitution.

In its latest announcement, the island's stand-in Chief Financial Officer, Hugh McGarel-Groves, has announced that the Customs Processing Fee, levied on all imports, is to be hiked from 4% to 6% from December 1, 2011, to generate USD6m on an annual basis.

McGarel-Groves has also announced the territory is to switch to using the US gallon for the purposes of import duty and fuel tax calculations. This change in measurement will have the effect of hiking import duties on fuel and alcoholic beverages by 20%. Additionally, there will be a further 20% tax hike on alcohol and tobacco.

Defending the measures, McGarel-Groves said that in the absence of fresh tax hikes the territory would run a budget deficit of USD35m. With the latest tax hikes, the territory's deficit this financial year ending April 1, 2012, will less than USD30m.

“I appreciate that no tax rise is ever popular, but I know that the people of the Turks and Caicos understand the importance of getting the public finances back into balance,” McGarel-Groves said.

McGarel-Groves emphasized that rapidly restoring public finances was critical to the Turks and Caicos Islands being returned to self-rule. He underscored that if austere measures were implemented to rapidly reduce the budget deficit, the government may achieve the crucial milestone of generating a budget surplus in the FY2012/13.

Alongside deep cuts to government spending, the interim government has also this year hiked business license fees by 35%, effective since July 1, 2011.

A number of new taxes were also introduced ahead of the proposed introduction of a value-added tax regime, anticipated to be in place from April 1, 2013, when they are expected to be rescinded.

The new taxes include: an Insurance Premiums Sales Tax, at a rate of 2.5% and chargeable on insurance premiums on domestic policies other than premiums on life and health insurance; the Domestic Financial Sales Tax at 10% on service fees charged by domestic financial institutions; a carbon tax on electricity generators; a water sales tax on commercial customers and large residential customers; and a 10% bank tax on non-interest bearing services provided by banks.

TAGS: tax | sales tax | insurance | budget | Turks and Caicos Islands | United Kingdom | fees | offshore | carbon tax | import duty

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