KINGSTOWN, St. Vincent — Vincentians will this year begin paying 15 per cent more in property taxes while duties on beverages, tobacco, and vehicles will see “moderate increases”, Prime Minister Dr. Ralph Gonsalves said yesterday while presenting his EC$793,911,053 budget for 2012.
Gonsalves, in his five-and-a-half-hour speech announced a number of concessions as he said that the fiscal strategy in 2012 continues form last year: “focusing on stimulating growth in the productive sectors while strengthening fiscal and financial stability.
“We aim to restore economic growth, ensure medium term fiscal sustainability and protect the social achievements realised in the past decades,” said Gonsalves, who is also Minister of Finance.
In announcing the fiscal measure around 9:45 p.m., Gonsalves said the annual rental value (ARV) used to access property taxes is difficult to determine, especially in areas where owners occupy all of the properties.
Property tax
According to consultants a neutral tax rate on property owners would be 0.07 per cent of market value, which, on average, would be equal to the existing 5 per cent of the ARV, Gonsalves said.
He explained that the rate applied to the valuation and not the method used to produce the list determines the tax accessed.
“We therefore propose to level the new property tax at a rate of 0.08 per cent of the market value, which would cause a modest 15 per cent increase in the tax paid by average tax payer,” Gonsalves said.
He said that his government considers the new tax — expected to generate an additional EC$3.2 million this year — to be reasonable since the valuation list has existed since the 1990s.
The overall revenue impact of the new tax regime will be greater and fairer since it will capture 10,000 more taxpayers and systems will be in place to enforce compliance and reduce delinquency, Gonsalves said.
According to Gonsalves, only 25,940 properties representing a rental value of EC$71 million are registered under the ARV system. However, the new tax protocol will capture 40,851 properties and 15,796 built-structures, representing an aggregate value of EC$9.05 billion.
But the new tax regime will also exclude person’s whose property are valued less than EC$25,000, some 10,000 taxpayers, some of who currently pay taxes.
“In other words, we want to keep the poor people off the list,” Gonsalves said.
Further, transitional relief will be provided for owners whose property tax increase by more than 25 per cent.
He said the new tax rates will be published and citizens can appeal to a tribunal if they think their tax is too high.
Concessionary rates will also be offered on certain type of properties, such as new commercial properties and hotels and other tourism related properties.
Properties will also be banded and the agreed rates applied to the mid-point of each band to provide the same rate for all property owners within a particular band.
Aggrieved property owners will have the right to appeal to a government tribunal.
“Mr Speaker, the property taxes in this country are way below property taxes across the region and we can’t reasonably expect to have a system for the payment of property [taxes] based on a rate and a base of 20 years ago. We all have to be reasonable,” Gonsalves said, adding that change in property tax had been on the agenda of previous governments but the work was not complete.
VAT
Citizens will also this begin paying value-added tax (VAT) on a number of items previously zero-rated.
Among the item to be transferred to the concession list are cooking oil, salt, yeast, baking powder, shortening (lard), sanitary napkins (pads), baby diapers, toilet tissue, and men, women, and children’s underwear garments, Gonsalves said.
He further told legislators that there would be stricter implementation of the nation’s VAT and Inland Revenue tax laws.
VAT arrears, at the end of December 2011, was EC$25 million as some businesses failed to pay to the government the taxes collected.
“The government can no longer tolerate such behaviour by a few delinquents and will be implementing a number of measures aimed at reversing the downward trend in revenue from the VAT and correcting the weaknesses in the administration of the tax,” Gonsalves said.
The Unity Labour Party administration will also this year move to correct an “anomalous situation” by making agricultural products zero-rated. Previously, all exports were zero-rated, except for unprocessed agricultural products.
“I should point out, Mr. Speaker, that it is normal in a VAT system, especially in its earlier years of operation, to make adjustments and correct anomalies,” Gonsalves said.
He further said that VAT has performed “reasonably well” since it was introduced in 2007, contributing 40 per cent of current revenue, generating EC$132 million last year.
Gonsalves, however, said that while the global recession has reduced VAT revenues, it could only explain a small fraction of the decline in revenue paid in to the Treasury.
He told lawmakers that a decrease in the level of compliance and an increase in the concessions granted are the major contributor to the decline in the VAT revenue.
Drink, tobacco, vehicle increases
He said that the increase in tax on tobacco, alcoholic and non-alcoholic beverages and vehicles are intended to promote healthy living among Vincentians and increase the contribution to road repairs.
Concessions
But the fiscal measures were a give and take as the government tried to stem declining revenue and increase productivity.
Gonsalves also announced duty-free concession on all raw materials for manufacturing, and agro-processing adding to the pre-existing exemptions on plant on equipment imported for use in this sector.
“We are giving the duty free concession on the whole range to build upon what the manufacturing sector has done in 2011,” he said, adding that the import duty on raw material imposes an extra cost and causes businesses to be less competitive locally and abroad.
He also said tax on raw material leads to cascading — where the tax at one stage falls upon those paid at an earlier another. Manufacturers will have to apply to the Ministry of Industry to access the facility.
Electricity
Gonsalves further said that the high cost of electricity is a major impediment to business development here since it is higher than most trading partners and puts local producers at a competitive disadvantage.
This year, the government will therefore reduce the electricity tariff for industrial users from $0.45 per kilowatt-hour to $0.4r per kilowatt-hour, effective March. This will cost the government EC$250,000 per year, most of which will be borne by the state-owned electricity company, VINLEC.
The government will also introduce a system of volume discount that will see industrial and commercial consumers using more than 150,000 units per month getting a 5 per cent discount while those consuming over 200,000 units per month will get a 10 per cent off.
In an effort to promote the use information communication technology and enhance the competitiveness of the sector, the government is offering a 25 per cent tax credit on eligible expenditure for any service provider or business that invests more than EC$5 million in the sector.
The credit will be for any given tax year and unused portion can be carried forward indefinitely.
Gonsalves said that the fiscal package for 2012 “reflects a practical commitment to certain fiscal principles”.
Among these, he mentioned a taxation system which is reasonable competitive, efficient and equitable and which facilitates growth and the building of a more productive economy and fairer society; prioritising public and making public expenditure more efficient, transparent and accountable; and consolidating and rebalancing the fiscal condition to suit the extant and prospective socio-economic circumstances.
The debate continues at 9 a.m. on Tuesday with the response of Opposition Leader Arnhim Eustace.
Correction: An earlier version of this story said that the property tax will be levelled at 0.8 per cent. Gonsalves has since told Parliament that this was an error. This story was updated to reflect that correction.