Value Added Tax by next year
January 27, 2006

Value Added Tax by next year

“We are not reinventing the wheel. It will be a challenge, but we should be able to do it (implement Value Added Tax, VAT) and do it efficiently within the time frame.” This assertion came from Alma Dougan, Manager of the recently established VAT Unit.

Dougan was commenting on reservations expressed by Leader of the Opposition, Arnhim Eustace on Tuesday as he responded to the budget presented by Minister of Finance, Dr. Ralph Gonsalves. {{more}}

While giving his support to the introduction of Value Added Tax, (VAT) here, Eustace expressed doubt that the country would be ready to implement the tax by January 2007. “It is an exercise that I recommend, but it has to be done properly.”

Describing the implementation of VAT as “a technical exercise,” Eustace emphasized that there is need to get the VAT right from the beginning. He stated that the introduction of the VAT should be done along with a revision of both corporate and personal income tax. This, he said, would take “more time than is being said,” mentioning that Barbados took four years to implement the system.

Dougan, who recently retired from the Public Service as Comptroller of Inland Revenue, noted that St. Vincent and the Grenadines has learnt from the mistakes of the other countries that have already made the change to VAT. Dominica, she mentioned, implemented their VAT system in August, taking one year for the transition.

The local VAT unit was set up in March 2005 and has four fulltime members of staff. In addition, they work closely with the Ministry of Finance, the Legal Department, Customs and the Inland Revenue Department. They have also been the recipients of technical support through the International Monetary Fund, (IMF) from Consultants who have also been working with other countries in the region.

Eustace in his address also mentioned the time it would take for businesses to put the necessary systems in place and for the general population to be made aware of the new system.

According to Dougan, the registrants to the VAT, that is, the businesses that will be affected are at a level such that they should be able to effectively cope with the changes. The real task, she opined, would be to sensitize the average man to what VAT is about. To that end, an education programme will be launched next month.

The announcement of the introduction of VAT came on Monday from Prime Minister Dr. Ralph Gonsalves as he made his budget address.

As part of the tax reform process, consumption tax, international telecom surcharge and stamp duty on receipt will be eliminated from January 2007. These will be replaced by the VAT along with excise taxes on alcohol, tobacco, petroleum and other specified products.

Explaining, the Prime Minister said, “Under the VAT system, the effective tax rate for most goods will be reduced, the tax base will be broadened to include most services and neither goods nor services will be taxed twice. The VAT system requires all businesses to improve their level of record keeping and to generate an effective paper trail for administration purposes.”