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The Turks and Caicos Islands Government will be allowed to decide whether to introduce a value-added tax regime from April 1, 2013, after lobbying of UK Government officials by the island's business community and the new Government, led by Premier Rufus Ewing.
Responding to Ewing's letter to the Foreign and Commonwealth Office on January 29, 2013, the UK Minister for Overseas Territories and the Caribbean Mark Simmonds, announced that the UK Government would at last allow elected officials in the Turks and Caicos Islands to decide whether to drop plans to introduce a value-added tax, but aired a number of provisos.
Addressing Ewing, Simmonds wrote: "The revised Fiscal and Strategic Policy Statement (FSPS) must show credible surpluses. It must be fully adjusted to reflect the decision not to introduce VAT, the uncertainty about alternative revenue streams and the weakening outlook for some existing revenue streams set out in the third quarter fiscal forecasts."
"The FSPS should be signed off by the Chief Financial Officer, as provided for under legislation, before being re-sent to London for final approval. The TCI Government will need to bear in mind that an approved FSPS is required before its budget can be agreed for 2013/2014 so there is some urgency."
He said that proposals put forward by Ewing in his January 29, 2013 letter including considerable public sector cuts, would need to be adopted under a legally binding fiscal framework, and further steps would need to be made to ensure TCI can access international financial markets by 2016 so it can become financially independent from the UK.
Simmonds conceded that the decision was being made despite the UK Government's view that "VAT would provide a fairer, broader and more stable revenue stream, and that without this the burden of taxation will fall on a smaller number of businesses and households."
The letter concludes: "I will instruct my team to monitor the financial situation very closely. I cannot and will not allow a reversal of the progress that has been made by the Interim Government."
The interim Government was installed on August 14, 2009, when the UK Government - acting on corruption concerns - assumed control of the territory's affairs - removing its elected premier, cabinet and assembly and suspending much of its constitution. Following three years of reforms, namely to improve the islands' finances and to introduce safeguards to ensure sound fiscal management and good governance going forward, the UK Government agreed that the islands could be returned to self-rule in elections held on November 9, 2012.
On making the announcement, the UK Foreign Secretary William Hague said that the final piece of the puzzle in closing this chapter in the TCI's history would be the implementation of VAT, to satisfy the UK Government that the territory would have a viable tax regime going forward.
Prior to the elections, TCI businesses objected to the forced introduction of VAT. When Ewing entered office in November he swore to back calls to ditch VAT. Initially, the UK Government responded by urging the introduction of value-added tax for a year, and a review thereafter. However, pressure mounted on the UK Government when on February 1, 2013, both the elected Government and the opposition backed a law that proposed to block VAT.
Under plans drafted by the Interim Government, it was proposed that from April 1, 2013, an 11% VAT would replace Communications Tax, the Hotel & Restaurant Accommodation Tax, Vehicle Hire Stamp Duty, the Insurance Premium Tax and the Domestic Financial Service Tax.
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