January 27, 2006

A pre-VAT Budget?

As we discuss the merits and demerits of Prime Minister Gonsalves’ 2006 Budget, there is no denying that we are indeed facing difficult times as a nation and as a region.

The enormous challenges before us were outlined in the Prime Minister’s Budget Address. Prominent among them was that of the changing international environment demanding fundamental changes in the way we work and live, increasing our responsibilities and making us more accountable to international standards. {{more}}

Two things in particular stand out for the year 2006. One is the unfavourable change in the European banana import regime. Banana may not be as important, as profitable or as omnipresent as it was a decade and a half ago but it is still THE most important rural economic activity and, as a result, a major social security value. The introduction of a Ministry for Rural Transformation is not by accident.

The second significant factor is the Caribbean Single Market and Economy (CSME) and the related OECS Economic Union, both of which are due to materialize this year. They call for major changes at both the governmental and non-governmental level and have far-reaching implications for economic and social life in our country. Moreover, the CSME itself is a stepping stone in the process of regional integration so as to strengthen the region’s capacity to interact with the rest of the world. In fact 2006 will see the CARIFORUM countries (CARICOM plus Dominican Republic) engaging in difficult negotiations with the European Union for an Economic Partnership Agreement (EPA).

One area to be affected by all these developments will be that of the government’s revenue base, not just on a quantitative level but at a qualitative level at that, for the tax system must be modernized and streamlined in conformity with those of its sister CARICOM states. In preparation for this, the Budget has outlined that “…the major focus here (for 2006) will be on preparatory work for the introduction of a modern VAT and Excise Tax System from January 2007”.

The VAT (Value Added Tax) will mean the elimination of a number of traditional taxes and their replacement by the VAT, widening the tax base to include most services. It will present the Government, the Private Sector and us all as consumers with major administrative challenges. Other Caribbean countries have had mixed experiences with the introduction of the VAT and it is an issue which, if not properly handled, can have major negative social and economic consequences.

We therefore welcome the proposed White Paper on the VAT and pledge to play our part in facilitating the far-reaching public awareness and education campaign that is a pre-condition for the introduction of VAT. It is an exercise that will help us all not only in understanding the VAT but the wider social and economic context in which it will be introduced. It will facilitate a deeper understanding of both the revenue-collection as well as the regional integration process.

One year, as the Opposition Leader pointed out, is but a short time to prepare us for this fundamental change. Businesses, large and small alike, cannot waste time in acquainting themselves with the new system and their increased responsibilities.

It is one way of developing our ability to cope with rapidly changing circumstances and we must take advantage of it if we are to survive and succeed.

The consultation must therefore be all-encompassing, using all means at our disposal to ensure that we are all ready come January 2007.