New system will change the way we pay tax
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February 24, 2006

New system will change the way we pay tax

With the introduction of the Value Added Tax (VAT) system by January next year, the use of stamps on receipts may soon be a thing of the past. This is just one of the major changes set to take place to accommodate the introduction of the new tax system here.

The use of VAT will see some changes in the way businesses and consumers contribute to the government’s revenue.

As part of the tax reform process, Vincentians will see an elimination of consumption tax on all goods imported, while international telecom surcharge and stamp duties will no longer be a burden to taxpayers.{{more}}

These charges will now be replaced by the value-added system allowing a broader tax base to include most/more goods and services.

According to Manager of the local VAT unit, Alma Dougan, this new system will serve as a general tax which will apply to all activities involving the production and distribution of goods and services.

With the implementation of the VAT, tax managers will seek to cover all areas of the economy to ensure everyone, importers, wholesalers, retailers and the consumer, pays revenue.

“VAT is designed in such a way that businesses will have to show receipts for every form of transaction, if businesses want to reclaim their tax. No one will be exempted from paying VAT,” Dougan said.

Though this shift in taxation may mean some initial expenditure for local businesses in coming up to speed with the necessary changes in the system before January next year, the implementation of VAT has been tipped by analysts as a more effective way of improving transparency in business transactions and capturing most if not all business activities on record.

Originally introduced in France in 1954, VAT is now a major part of the tax structure of most European countries, while in the region Barbados, Jamaica and Trinidad and Tobago have successfully implemented the Value-Added system with proposed reintroduction in Belize and Grenada.

The likely loss of revenue resulting from new trading agreements globally has pushed this country and other Caribbean countries to undertake major tax reform with the intention of strengthening domestic taxation while seeking a harmonized tax base across the region.

This value-added system will ensure that all forms of consumer spending, whether through the purchase of goods or the use of services are taxed evenly.

Though countries like Jamaica, whose crumbling economy was partially rescued by the implementation of the Government Consumption Tax (GCT) in the early 90’s and Barbados’ introduction of the VAT in 1997 were successful, neighbouring Grenada failed terribly in introducing VAT only five months after its tax restructuring program in 1986. These three regional examples form important case studies at which analysts will be looking closely during St. Vincent and the Grenadines’ implementation process in the coming months.

Services Sector to attract charges

And, while traders will no longer face direct tax on customs imports, some services once tax-free for consumers will now be slapped with the new consumption tax, VAT, by next year.

Health, education and transportation services are most likely in line for exemption while general services such as hair dressing and communications will pass on the value-added charges to consumers as government sets in motion the process to implement a broad-based system to procure more revenue.

The VAT Co-ordinator explained to Searchlight Business that even though the VAT is imposed on some services the cost of doing business would not experience a significant shift in pricing.

Dougan mentioned that while the VAT charges are added some prices will rise, but not by the any great proportion. She said businesses would no longer pay tariffs, which will prevent them from setting prices higher than what is determined by the market.

During the budget presentation last month, Opposition Leader Arnhim Eustace expressed his reservation about the short time in which business owners will have to prepare to meet the standards of the new tax system. While giving his support to the system, he mentioned that the implementation of the VAT along with the revision of both corporate and personal income would take more time than is being said.

However, Dougan is of the opinion that the new system will be implemented efficiently within proposed the time frame.