Increased VAT, Airport Service Charge coming

Increases in the Value Added Tax (VAT) and the Airport Service Charge are two of several fiscal measures which will be introduced by Government this year, with the objective of increasing revenue.

As he presented his 2017 Budget address last evening in Parliament, Prime Minister and Minister of Finance Dr Ralph Gonsalves said the additional revenue is needed in order to finance the Government’s “ambitious plans for growth and development.”

He said in 2016, revenue measures were very successful with current revenue amounting to $589.4 million or 13.5 percent more than the $519.3 million collected in 2015 and four per cent more than the amount budgeted for the year 2016.

While revenue was boosted by the fiscal measures introduced in 2016, Gonsalves said the main impetus for the growth in collections came from “improvements in the machinery at both the Inland Revenue and Customs and Excise Departments.”

The Government, however, continues to face serious fiscal challenges, including the high cost of servicing public debt and the frequency of natural disasters.

“We must respond to these challenges whilst continuing with our Fiscal Consolidation Programme, aimed at promoting economic growth, job-creation, and social development,” he said.

In order to offset the significant costs Central Government has incurred as a consequence of frequent, severe natural disasters, a one per cent levy will be introduced on consumption in the State to capitalize the Contingencies Fund, which is being established pursuant to Section 72 of the Constitution.

Gonsalves said the most efficient way to give effect to this measure is to increase the standard rate of the VAT from 15 per cent to 16 per cent and the rate for accommodation and other tourism related activities from 10 per cent to 11 per cent.

This measure will take effect from May 1, 2017, in order to give businesses the time necessary to make the required alterations to their systems, the Prime Minister said. The revenue yield from this measure is estimated at $10 million per annum.

The Prime Minister said within three years, the Government will review this measure.

While the VAT rate will increase, the VAT registration threshold will rise from $120,000 to $300,000, effective May 1, 2017.

“There is good evidence to suggest that raising the threshold would reduce administrative costs of Inland Revenue Department (IRD), as well as the compliance cost of small businesses, while having only a minimal impact on revenue yield. Raising the threshold would also keep up with trends in the region….This increase in the VAT threshold means that approximately 800 registrants will be removed from the VAT Register.

“The estimated loss of revenue from this measure is approximately $3.5 million per annum.”

In an effort to spur additional investment in the yachting/marina sector and help to make our product more competitive, the rate of VAT for rental of a berth in any marina or shipyard will be reduced from the standard 16 per cent to 11 per cent.

Additionally, the VAT charged on biodegradable packaging and food containers will be removed.

“This measure is intended to lower the costs of these environmentally positive substitutes for plastics, including styrofoam, and reduce the adverse effects that plastics have on our environment. To further bolster this measure, I propose to place a ban on the importation of styrofoam products with effect from May 1st, 2017,” Gonsalves said.

Additional fiscal measures announced include an increase in fees payable under the Professions Licensing Act by 20 per cent; an increase in the Airport Service Charge on passengers departing by aircraft from St Vincent and the Grenadines to EC$100 (US $40.00); and an increase the Alien’s Landholding Licence Fee.

The two per cent levy introduced in 2016 on telephone calls originating from St Vincent and the Grenadines will also now be applied to incoming calls and data. This measure becomes effective from March 1, 2017.

The Government has proposed a reduction in the Traders Licence by 50 per cent, a symbolic gesture of commitment to the small and medium-size business, Gonsalves said.