SVG’s Value Added Tax now set for May 1, 2007

Introduction of the Value Added Tax has been put back by four months and government has made two major amendments to exemptions on water and electricity however the opposition refused to support it without an exemption on electricity for the business community.

Prime Minister and Minister of Finance Dr Ralph Gonsalves announced in Parliament that he was postponing the implementation of VAT from January 1, 2007 to May 1, 2007.{{more}}

Speaking during debate on the Value Added Tax Bill 2006 he said the postponement was in response to both the Chamber of Commerce which was concerned about the high level of stock during the Christmas period and the tourism sector which was concerned about the impact in the middle of the winter tourism season.

Gonsalves disagreed that there would be any negative impact on either sector but said since there was no urgent public policy imperative for the implementation on January 1, he agreed to postpone it.

He also made two major amendments to Schedule Three of the bill by increasing the exemption on electricity from 135 kilowatt hours (KwH) of power per month to 200 KwH. Fuel surcharge would also be VAT exempt.

In addition, all water has been exempted from VAT. Originally, only the first 3,500 gallons per month would have been VAT free.

The Prime Minister said that the VAT as structured would benefit the poor. The groceries they buy would become cheaper because these would be VAT-free. Opposition leader Arnhim Eustace supported the VAT in principle but could not give their vote until government answered some important questions such as how much money is projected to be raised under VAT?

Eustace said that when Barbados implemented VAT it raised $146 million more than projected.

In the event of a revenue surplus how will that money be used? Would government increase the income tax threshold?

He also felt that the basic food basket was too short and not very nutritious while the healthier food was taxable.

While welcoming the exemption on water he felt that electricity should also be exempted because of the impact it would have on the cost of business and the potential ripple effect in the

economy.

Until electricity was exempted, Arnhim said the opposition could not support the measure.

The bill was passed.