Individuals
Anti-VAT Claim: Many everyday items will cost you more
This is not true. VAT in the TCI is a replacement tax. When VAT is implemented there will no longer be Communications Tax, Vehicle Hire Stamp Duty, Insurance Premium Tax, Domestic Financial Service Tax or Hotel/Restaurant Accommodation Tax. This is simpler and more efficient. Upon the introduction of VAT, TCIG will reduce import duties on most goods by 10-15% – so everyday items should not cost more. The Government set the rate at 11% in order to allow the widest possible number of everyday essential items to be exempt from VAT or be zero-rated including rice, flour, sugar, milk and eggs, chicken, fish and meat, fresh fruit and vegetables, infant supplies, personal hygiene products, hurricanes shutters, cement, steel, fuel, property leases and rents, property sales where stamp duty is applied, medical services, transportation, religious services and printed materials. VAT will be zero-rated on electricity and water supply so these prices will not rise either.
Anti-VAT Claim: VAT is worse for the less well off than for the wealthy
This is not true in the TCI model. The Government has taken great care in developing a model of VAT here that will not see a rise in the cost of everyday items (see above), utility charges or on rents. VAT is not a tax on income but a tax on goods and services but, by virtue of being simpler and more efficient, it will provide a more regular and predictable income to the Government. We need this stability to ensure planned and sustained investment in public services which have suffered significantly since the collapse on 2008. VAT helps guarantee funding and investment for essential public series which are arguably more vital to the less well off than the wealthy, who may have easier access to alternatives providers – schools, health etc.
Anti-VAT Claim: Enlightened TAX experts regard VAT as a grossly unfair tax
Unfair to whom? This depends upon your tax expert’s stance. If they believe that tax take from an individual or business should always be minimal, then, of course, they may take this view. If you believe that tax should be used for providing essential public services then VAT is a good tax as it provides a steady and predictable income with which to do so. The TCI’s public income has fluctuated wildly in recent years and this makes longer tem planning significantly more difficult. If income drops, then this must change what and how public services are provided.
Anti-VAT Claim: You should be aware that the global history of VAT is that spendthrift governments (such as the UK) use VAT to plug the ever increasing holes in their fiscal plans and inevitably VAT rises as things get worse.
VAT is a good tax for Government as it provides a steady and regular income essential to guaranteeing public services. The Interim Government has set about restoring TCI’s public finances. It has not been spendthrift. Indeed the anti-VAT campaign said in its open letter to the press on 4 July that “… it is perfectly clear that the countries (sic) finances are no longer in a mess…”. But this recovery is fragile. We do not wish to increase our tax revenues, but rather to make them more stable by simplifying taxation and broadening into sectors of the economy that currently pay no tax.
Anti-VAT Claim: VAT is currently 20% in the UK.
This is true in the UK. But a rate of 11% is proposed here in TCI – the second lowest level in the Caribbean after Haiti. Further, we are proposing a gross sales figure of $200,000 a year which is the highest in the region, the next highest figure being USD $110,000 in gross sales in Antigua and Barbuda.
Businesses
Anti-VAT Claim: it is a major book keeping headache and will cost you more in accountancy fees
This is misleading. VAT is a simple tax to administer and collect. A business will work out how much VAT it has paid out to its suppliers, and then calculate how much VAT it has brought in. If it brings in more than it paid out it submits the difference to the Government. If it pays out more than it brings in it claims a credit from Government. Further, VAT will replace five other taxes – actually making life simpler for business and Government alike. We have also targeted the introduction of VAT mainly at larger businesses with turnovers of $200,000 (and more than $50,000 if a hotel or restaurant to prevent any loss of revenue in this sector). It is likely that these businesses already keep the simple records required meaning marginal, minimal additional cost. Further, TCIG’s VAT Implementation Unit assist will assist those 400 or so businesses who qualify for VAT registration with these requirements.
Anti-VAT Claim: It plays havoc with your cash flow giving you a false picture of how much cash you actually have at hand
This is also misleading. Cash flow is essential to any business (and Government). Why would business not want Government to be run as well as their own enterprises? Also, is the Turks and Caicos Independent Business Council, a group of eminent and successful commercial figures, really suggesting that they do not know what their debts (costs) and credits (income) are at any point in time? This is an immature argument – businesses have a good understanding of how much money they have going in and out.
Anti-VAT Claim: It means your goods and series will cost considerably more and therefore people buy less of not at all
VAT is a replacement tax designed to help improve the Government’s cash flow so that it can sustain essential public services. As such, most items should not cost more. Indeed we have exempted and zero-rated a wide range of everyday essential items to help ensure this. We accept that if you are an accountancy, legal or architectural firm you will have to charge up to 11% more – but, equally, you can offset the VAT you pay on your purchases against that which you bring in.
Anti-VAT Claim: The tourism industry throughout the world as found to its cost that VAT equals drop in sales
VAT in the TCI replaces Hotel/Accommodation tax (amongst others) and is set at the same rate. If sales drop when taxation remains constant then it must be for other factors. The anti-VAT campaign has cited Barbados as a country that has suffered from the introduction of VAT. Barbados introduced VAT in 2007 and continued to grow for a number of years. Its present difficulties are due to the state of the global economy and other factors, not the introduction of VAT. Similarly, the introduction of VAT in Jamaica (where it is called the General Consumption Tax) did not bring about a negative impact on businesses, and has a higher compliance rate than other taxes.
Anti-VAT Claim: You need to be aware that this is a tax much favoured by the EC (sic) bureaucrats in Brussels who would like to see high tax administrations throughout the world
VAT is favoured by those who wish to see planned and sustained investment in essential public services, which can suffer if income drops. We believe that this statement has been made by someone whose politics are set against the institutions of the European Union.
Anti-VAT Claim: Spain is planning to raise VAT rate for hotels from 8% to 18% at the prompting of the International Monetary Fund and the EC (sic). This will kill an already struggling industry stone dead.
Like many other countries Spain is experiencing economic difficulties that are not caused by VAT. Spain has a massive tourist industry catering to every sort of tourist – from the budget conscious to those demanding the lap of luxury. It remains to be seen how any rise in VAT will affect this extremely popular, mature and well established tourist destination.
Anti-VAT Claim: A country like the UK needs VAT and other extremely high taxes because the public expenditure and benefits culture is completely out of control. Island communities like ours are not run in this wasteful fashion.
The UK is also experiencing financial challenges. The Government there has introduced a wide ranging cost cutting and revenue maximising measures, including raising VAT to 20%. Equally, the previous Government reduced VAT to 15% for a period. Again, to quote the TCIBC open letter to the press: “The Turks and Caicos has weathered the international crisis and its tourist industry has shown itself to be remarkably resilient.” But to keep the country on track and to develop in the future the Government needs the stable and predictable income that VAT provides.
The VAT White Paper is available to view online at: http://turksandcaicosislands.fco.gov.uk/en/news/?view=News&id=783351182
