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Turks And Caicos Face UK Tax Overhaul

by Phillip Morton, Investors

03 November 2010

Acting Governor of the Turks and Caicos Islands, UK Member of Parliament Mark Capes, has confirmed that the UK government is progressing plans to implement reform of the islands' tax system.

The jurisdiction is currently under the control of UK authorities as a result of allegations of systemic corruption in the previous government. It was recently announced that elections in the territory are to be postponed indefinitely, a decision that has been attacked by neighboring Caribbean Community (CARICOM) states as an attempt by the UK to 'recolonize' the Turks and Caicos islands. Further exacerbating strained ties with islanders, the latest decision by the UK plenipotentiary is likely to be ill-received as a challenge to the islands' fiscal autonomy.

In a statement on October 29, Capes emphasized that the move is necessary while the islands are under the UK's control as the jurisdiction's inadequate fiscal policy, and weakened economy, exposed by the financial crisis, will lead to a significant deficit in 2010/11. Forecasts cited by Capes show a forthcoming shortfall of USD48m, with revenues expected to cover just 60% of projected government spending at USD120m.

The replacement government in the islands has therefore determined that options should be pursued, including tax increases, to “develop a more sustainable revenue base; one that will help to rebuild the territory's public finances and put it on a stable footing for future generations.”

Capes announced that a review, conducted earlier in 2010 by Professor Roe would form the basis for future decisions on fiscal policy. Capes emphasized that local businesses and professional groups had contributed towards its content. To implement Roe's recommendations, EU-funded revenue consultants are to be imminently drafted in, Capes said.

Capes statement adds that, “a wide range of options for current and potential new revenue sources will be assessed, along with improvements to [the Turks and Caicos Islands'] tax administration system.”

Capes reassured taxpayers that: “Work is at a very early stage; no decisions will be taken without comprehensive modeling of the effect on TCI’s economy and widespread consultation with the public, the business community and Consultative Forum. Any changes to the revenue system will be decided by the Governor in consultation with the Advisory Council.”

According to Roe's recommendations, a value-added tax system is being considered, along with the consolidation of other minor levies.

The Turks and Caicos Islands’ tax regime currently is limited in terms of revenue generation, with levies only falling on a few areas, including: gambling activity and vehicle rentals; import and export duties; and stamp duty on the sale of property. Corporations are exempt from income tax, and there is no sales tax in the islands.

TAGS: individuals | tax | value added tax (VAT) | sales tax | fiscal policy | international financial centres (IFC) | Turks and Caicos Islands | United Kingdom | offshore | gambling | stamp duty

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