Vincentian workers and businesses will, this year, see a reduced tax burden while a Climate Resilience Levy will be imposed on visitors to the country.
These were some of the fiscal measures Minister of Finance Camillo Gonsalves announced Monday in his first Budget Address since taking over that portfolio last year.
The change in the tax regime will see the government losing EC$12 million in revenue, which the minister warned that the government will not simply forego, but will recoup by clamping down on tax defaulters.
“The government is committed to reducing the tax burden on Vincentians while simultaneously ensuring that those who flout our tax laws are given an opportunity to choose between regularising their arrears or facing the full range of legally available enforcement measures,” the finance minister told parliament.
“Additionally, we intend to implement a series of legislative and administrative enhancements to our tax-collection apparatus to optimise efficiency and fairness,” he said.
The EC$993,535,449 Budget, which, like the Estimates one week earlier, was presented in the absence opposition lawmakers, who walked out of Parliament, will also see value added tax (VAT) on domestic electricity consumption kicking in at 150 units rather than 200.
The budget will also ban the importation of used vehicles older than 12 years.
Lower corporate, personal income tax
Gonsalves announced that the standard rate of company taxes will be reduced from 32.5 per cent to 30 per cent, costing the government EC$5.1 million.
The marginal rate of personal income tax will also fall by 2.5 percentage points to 30 per cent. The change in personal income tax will see the government losing EC$4.2 million this year.
He noted that these rates of taxes were 40 per cent when the Unity Labour Party (ULP) administration came to office in March 2001.
The income tax rate for hotels has been reduced from 30 per cent to 29 per cent.
“This reduction and the special rate for hoteliers is a tangible indication of this government’s continued prioritisation of local hotel growth and development,” the minister said.
The government also announced that it shall raise the standard reduction for personal income tax from EC$18,000 to EC$20,000.
“This means that the first EC$20,000 earned by Vincentians will not attract any income tax,” he said, noting that when the ULP came to office, only the first EC$12,000 was exempt.
The measure will see the government’s revenue intake fall by EC$2.7 million
“These measures continue the commitment of this government to provide economic stimuli via tax reductions and to improve, in practical and tangible ways, the condition of the Vincentian worker. Nationally, the lowering of the tax rate and the raising of the threshold will cost the government approximately $12 million,” he said.
Gonsalves said that prior to 2009, the first full year of the global economic crisis was the last occasion on which some tax relief was provided for the workers and the private sector in respect of profits and personal income tax.
“An internal analysis was conducted and it was concluded that it is time once more to do so. This is accessed to be the occasion for this substantial tax relief.”
The minister said that all told, the government will lose EC$12 million in revenue as result of the tax reductions.
VAT on electricity
Amidst the lower taxes, VAT on domestic electricity usage will kick in earlier.
As of May 1, the government will reduce the kilowatt threshold for VAT from 200kWh to 150kWh.
“This means that, all VINLEC domestic consumers who consume 150 units or more; just 36 per cent of VINLEC’s domestic customers will now pay VAT.
“This adds only 13 per cent or so of consumers to the potentially ‘vatable’ list. The poor do not consume 150 units per month; so, they would still not pay the VAT. The VAT is payable only on the basic charge, and is not paid on the fuel surcharge,” the minister said.
He said the measure is expected to provide an estimated EC$1 million in additional revenue annually but the government anticipates that as consumers continue to implement more energy efficient measures in their households, the level of electricity consumption would decline, thus reducing the number of domestic customers who will fall within the VAT threshold.
Vehicle surcharge
Effective May 1, the government will increase by EC$1,000 the surcharge on motor vehicles older than four years old.
This measure will generate EC$1.2 million in revenue.
The government will also ban, effective May 1, the importation of used motor vehicles that are over 12 years old.
This means that Vincentians would no longer be allowed to import used vehicles manufactured before 2006.
Gonsalves said that over the years, the importation of used cars older than four years into St. Vincent and the Grenadines has increased tremendously.
“The phenomenon has increased traffic congestion and the number of derelict vehicles left abandoned along roadways. For some time, we have resisted taking action in limiting the age of vehicles being imported; the time has come to address this,” he said.
Climate Resilience Levy
In explaining the EC$8 per night levy to be imposed on stay over visitors as of May 1, 2018, the finance minister told Parliament and media audiences that the Contingencies Fund established by last year’s budget was capitalised by increasing the rate of VAT from 15 to 16 per cent.
Over the eight months of its operation in 2017, the levy capitalised the fund to the tune of EC$6.75 million. This year, the government hopes to collect a further EC$11 million through the fund.
The finance minister said that international financial institutions such as the International Monetary Fund and the World Bank have lauded the government’s decision to establish the “rainy-day fund”.
“However, they have urged the government to seek out additional means to increase the inflows to the Contingencies Fund, given the countries vulnerability to increasing intense adverse weather events and fiscal risks they pose.
“As a prudent and responsible government, we have heeded this advise,” the minister said and announced an EC$8 per night levy to be paid by all stay over visitors in hotels, apartments, and short-term rentals.
The revenue from this measure is estimated at EC$1.7 million in 2018.
The minister said that the fiscal measures being implemented this year have been “judiciously crafted to support the government’s social and economic development agenda over the medium term”.
The fiscal package
The EC$993,535,449 budget represents a 1.7 per cent increase over the approved Budget for 2017 and includes the first surplus in years.
The 2018 budget is comprised of recurrent expenditure, inclusive of Amortisation and Sinking Fund Contributions of EC$776,879,739 and capital expenditure of EC$216,655,710.
The government is anticipating that the 2018 budget will be financed by current revenue of EC$620,658,138, and capital receipts of EC$371,877,312.
The 2018 current expenditure, exclusive of Amortisation and Sinking Fund Contribution amounts to EC$617,421,847.
Current revenue of EC$621,658,138 is expected to be collected in 2018.
There is a modest current account surplus of EC$4.2 million.
The EC$621 million in current revenue is 5.2 per cent or EC$30 million more than in 2017.
A stay-the-course budget that does nothing to address our economic woes.
The single biggest drag on our economic development are sky high import duties — which the budget fails to address — that: (1) rob business people of monies to invest in expanding their enterprises and (2) prevent consumers from having enough funds to expand their purchases of necessities and discretionary items — food, clothing, building and renovation materials, etc. — that would result in more people being hired by the private sector.
Meanwhile, much of what is collected by way of duties and other taxes are used to support our inefficient, incompetent, and bloated public service, a sector that is proportionately larger in membership and payroll compared to any other Eastern Caribbean Currency Union country, according to the latest IMF report.
Although there are some very good reductions in taxes, you are right that vital thing were ignored. The reduction of the corporate income tax is not enough. Our Corporate tax rate should be reduced to at least 21%. Investors are not going to flood into SVG because of a 2% reduction.
Increasing costs for tourist may not be a wise move either. I would call that biting the hand that feeds you. Nevertheless, the government did make some moves in the right direction.
2% may not sound like a lot to the common folk but to investors it’s a lot 2% of $1000000 is $20000: so to every mil invested you save, $20000. That’s s lot to give any more is just a giveaway. Think about it
Cazz, 2% is not very much when you compare with what investors will get when they go to other countries. Some Caribbean nations have 0%, One has 4% Cuba used to have 30% but they reduced much lower. The USA went from 34% to 21% last week.
I see your point Cazz, but the 2% reduction will not increase any investors desire to come here, it would have to be 21% or lower.
Great Guys! It is the systematic thing to do to congratulate a colleague after his/her Budget Address; as I take this opportunity to do so now: Brilliant presentation by the Finance Minister. No one can doubt the effectiveness of his presentation skills regardless of the topic. However, I wander how many while listening, hope that as a LEADER of emancipation, in closing, would have exhibited some form of humility; ingrained and cultivated through the moral foundation of our SVG Christian principles, a simple apology to the people for the matter of the Yugge/Finance Minister saga. Let’s not overlook the role of ‘Leadership’. Humility goes a long way in the future to any resolution; while pompousness can do much damage>>>>> CHARACTER is what you do when NO ONE ELSE IS LOOKING. Men of integrity value what is honest, true, noble, trustworthy, kind, and right, ahead of PERSONAL GAIN. When it is firmly embedded in our foundation, integrity ceases to be optional but instead becomes a way of life. PLEASE! Lets not embrace these behaviours as a way of life within our lovely Homeland!
True! Humility is seen as a sign of weakness today when it is in fact a sign of strength. It takes a real man to admit a mistake. Mel Gibson is one of the few prominent people strong enough to show humility.
A budget, based on taxes, tax collection and more taxes…? Reducing the tax burden on your workforce, that is good, but taking it back by having their electricity bill goes up is not a tax break to them. Furthermore, what about those who are not working? This would place additional burden on them, seeing their light bill increase. Additionally, you are going to place a tax on visitors? How is that good business for tourism? This budget is a complete failure to the people of SVG. Its says nothing about development, nothing about investment in revitalizing the agriculture sector, no investment in tourism, nothing about job creation…it’s all about tax collection. You are going to give businesses a 1% tax break but surely import duties will be increased to offset this. What happened to growing the productive sector of our country, particularly agriculture which have been the backbone of this country’s economy since donkey years? We can’t just run the country on tax collection alone. We also need to grown the productive sector and get agriculture back on it feet so that the people themselves can survive. This budget only saying how the government intents to survive, but nothing about how it is going to help the citizenry of this country survive. So Vincentians get ready for another year of hardship. For certain, more businesses are going to close their doors with government’s plan to further enforce measures on businesses to timely pay their taxes. If they can’t pay they will have to shut down, which mean the people working there will lose their jobs. The government needs to come up with better measures to stimulate and grow the economy than just acting as a tax collecting agency. Agriculture and our farmers, traditionally are the growers of our economy. Therefore, do no keep them out to pastures, instead bring them back to the fold and invest in them again. Let us grow the country productive section and reduce the tax burden on all. This is the only way this country can progress economically, we have track a record to prove this. This is not rocket science but common sense. I just done know anymore! I must be stupid or something!
Great points you have made Brown Boy USA: So unfortunate that the Opposition boycotted the opportunity to debate and to highlight those points you have noted above. How do they expect to win any election by only protesting. An effective Opposition will debate in the House while their supporters mobilize, listen at an arena and protest.
Change your name from brown boy USA to brown boy SVG then your opinion will mean something to patriots like myself
You are so very correct. The government need s to change its attitude before they will be able to make the proper changes. At present it is “of the government, by the government, and for the government. We need a government that thinks about the people, not just what they can take from the people.
Its a nothing Budget that gives nothing away worth having, it does nothing at all for poor people who will still be eating chicken back today and tomorrow.
As for being given relief on money owed to the ALBA bank. Chavez promised to pay the Cubans wages, it never happened they simply reneged on the deal. We spent ten years not just paying wages to Cubans we paid Venezuelans as well.
They gave us $10 million of secondhand plant which was too small for the purpose required and it ended up as a pile of scrap.
Then the Gonslaves rejoice taking ALBA money whilst children and the people of Venezuela are starving.
We still owe all those multi millions to PetroCaribe.
God only knows how much has been stolen by politicians.
The reincarnation of a man who write his own death announcement.Mad inna life even more mad inna death.
Although I agree with much of what you say, recently there was some debt forgiveness from Venezuela. It is terrible that the government of Venezuela cares more about their relationship with SVG than they do about their own people. Rejoice that taxes have been slightly reduced for the lower middle class. The very low wage earners already pay no income tax, the problem is that most all costs and prices in SVG are too high, this effects the poor most of all. It is mainly because we do not produce much of anything and duties are too high… everything has to be imported.
Businesses are given no incentive to employ people because taxes and duties are still too high. Duties have to be lowered by about 40-60%, Corporate income tax should be below 21% and the public service should be reduced by about 70%. We also spent too much money flying public servants all over the world at Liat and first-lass prices. There is an invention called the telephone and now “Skype”‘ that should be used by nations needy for revenue.
If our government does not start to get really serious, we will always be an impoverished nation.
Simon, the only time the poor and doltish will benefit is just before the election when lumber and galvanize are handed out so that they vote as programmed.
Why do we call the less fortunate and deceived poor and doltish? It is like sinking someone deeper that he/she is already. If you truly believe that they are being taken advantage of, then help them up whichever way you can.