KINGSTOWN, St. Vincent, CMC – Prime Minister Dr. Ralph Gonsalves has presented an EC$976.4 million budget to Parliament outlining new taxes, outlining plans for economic growth, job creation and social development.
An estimated EC$747.3 million of the budget will go towards recurrent expenditure, inclusive of Amortisation and Sinking Fund contributions and capital expenditure of EC$229.5 million.
The budget is financed by current revenue of EC$590.7 million and capital receipt of EC$368.2 million.
Gonsalves told legislators on Monday night that nationals will, this year, begin paying a higher rate of Value Added Tax (VAT), expected to bring in EC$10 million in revenue. He said that the rate of VAT will increase by one percentage point to 16 per cent as of May 1, 2017.
The government also announced a 150 per cent increase in departure tax, moving from EC$50 to EC$100 as of February, 15.
In announcing the increase in VAT, Gonsalves spoke of the frequent occurrence of severe natural disasters and the extensive loss and damage to houses, physical infrastructure and economic enterprises, especially since 2010.
He said the Central Government has incurred significant costs in providing relief and assistance to affected households and businesses and for rehabilitation and replacement of damaged infrastructure.
“Indeed, we have calculated that no less than 10 per cent of the public debt has been incurred for disaster related projects and initiatives, narrowly-defined,” said Gonsalves, who is also Minister of Finance.
He said that in order to help offset the cost of these natural disasters, the government is introducing a one per cent levy on consumption within the island to be used to capitalise the Contingences Fund, which is being established.
“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.”
Gonsalves told lawmakers that the measure will take effect from May 1, 2017, to give businesses time to make the required alterations to their systems.
“The revenue yield from this measure is estimated at EC$10 million per annum,” Gonsalves said, adding that he will review it in three years’ time.
The government is also expanding the two per cent Telecommunication Levy it introduced last year, levying it on incoming calls and data usage, in addition to outgoing calls, as was the case when it was introduced.
Funds from the tax are allocated to the Zero Hunger Trust Fund to assist the government in its fight to eradicate hunger in the country, Gonsalves said.
“The Fund has commenced several interventions in an effort to ensure that the work continues. The two per cent levy will also now be applied to incoming calls and data. This measure becomes effective from March 1, 2017,” Gonsalves said.
Gonsalves also announced that the VAT threshold will be increased from EC$120,000 to EC$300,000, the first review since the tax was introduced in 2007.
“This increase in the VAT threshold means that approximately 800 registrants will be removed from the VAT Register,” Gonsalves said, adding that the estimated loss of revenue from this measure is approximately EC$3.5 million annually.
Gonsalves also announced that the rate of VAT for rental of a berth in any marina or shipyard will be reduced from 16 to 11 per cent.
“The reduction in VAT in this regard will undoubtedly spur additional investment in the yachting/marina sector, and help to make our product more competitive,” Gonsalves said, adding that his administration will be clamping down on professionals who have been avoiding paying taxes.