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Turks And Caicos Businesses Slam 'Forced' VAT

by Amanda Banks,, London

12 July 2012

Hundreds of businesses in the Turks and Caicos Islands have signed a petition calling on UK authorities to allow the next government in the Turks and Caicos Islands, due to be elected on November 9, 2012, to consider whether a value-added tax regime (VAT) is the best option for the territory.

An interim government was installed by UK authorities in response to alleged corruption and unsustainable debt levels, and it has set about installing safeguards to ensure good governance and sound financial management by future administrations.

Acknowledging progress towards these reforms in June, the UK Foreign Secretary William Hague confirmed there had at last been enough progress to return the islands to self-rule. He said: "We now judge there has been sufficient progress, on the milestones and on putting in place robust financial controls, to set November 9, 2012, as the date for elections."

Hague said that the UK government had assessed that a total of seven, of eight, milestones have now been achieved, with the final one on fiscal policy set to be achieved in 2013 when a new VAT regime is due to be implemented.

The UK government reported that although the territory failed to achieve budget targets last year, measures in the 2012/13 Budget, including the introduction of VAT, are expected to lead to a surplus of USD20m in 2013.

The interim government believes that VAT is a tax-neutral reform that will cut the costs of the administration of the tax regime, and bring in new revenues by improving tax compliance. The government has dismissed opposition to VAT as being championed by sectors of the Turks and Caicos Islands' economy that have historically not paid tax.

In a recent document confirming that VAT would be introduced from April 2013 at 11%, the government pointed out that this would be the second lowest sales tax in the region, and equal to the rate currently in place on the hotel industry. The VAT would also replace five existing levies on several types of business.

However, in a recent letter to the UK government, Turks and Caicos Island business leaders have called for a delay to the introduction of VAT to allow for a full analysis of its potential impact on the economy.

The letter states:

“Although, the Governor and the Chief Financial Officer (CFO) admit that significant progress has been made they still argue that the public finances are in a mess. However it is perfectly clear that the country’s finances are no longer in a mess and there is no justification for the introduction of VAT in order to collect higher revenues.”

“Indeed if one looks at the government’s own budget, it is only aiming to collect an extra USD10m. It is hardly worth implementing a whole new taxation structure just in order to collect this amount of incremental revenue. Indeed the incremental revenue is much less because the government’s budget conveniently omits to record the costs of the introduction of the tax so there may in fact be no incremental revenue at all.”

“To be clear we in the business community do not object to an increase in taxation if it is needed, and if it is needed there are simple, well understood, well tried and efficient existing taxes that can be used to do so. Our objection is to the use of an extremely complex tax that is expensive to implement, expensive to collect and places additional resource and cost burdens on the business community. All of which will add yet more costs for a country that is already one of the most expensive [tourism] destinations in the Caribbean.”

“Sadly there seems to be an ideological commitment on the part of the British Government, possibly generally supported by the International Monetary Fund that the TCI should have a VAT system, however badly it fits with these islands, our economy and our culture. Cayman has already rejected VAT. Its introduction here is needless and we all believe will be damaging - damaging to the standard of living of all islanders, damaging to the tourist trade that is our livelihood and damaging to the investment that we need to create new jobs.”

“Indeed it is remarkable that having stated, on the one hand that the islands had progressed sufficiently to be able to democratically elect their own representatives, the interim administration seems to have decided that those representatives will not be fit to make the decision with respect to the introduction of VAT.”

“Already the new CFO Ordinance will severely control future elected governments with respect to economic strategy. With respect to the need to ensure fiscal prudence and rectitude there is absolutely no reason for the British government to foist an alien tax on the TCI community."

TAGS: tax | business | value added tax (VAT) | sales tax | fiscal policy | international financial centres (IFC) | Turks and Caicos Islands | United Kingdom | offshore | legislation

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