Published On: Mon, Jan 21st, 2013

New tax creates political unity in Turks and Caicos

PROVIDENCIALES, Turks and Caicos Islands – The fight against the imposition of value added tax (VAT) in the Turks and Caicos Islands (TCI) has now produced an unusual bipartisan unified front by the government and the opposition.

While government supporters, including former Progressive National Party (PNP) candidate Royal Robinson, have gone public with an appeal for unity against Britain’s Foreign and Commonwealth Office (FCO), which promoted the VAT legislation in the first place and has since rejected requests for a delay in its imposition, resistance to VAT had not so far generated any political unity.

All this changed on Saturday, when Premier Rufus Ewing invited Peoples Democratic Movement (PDM) opposition leader Sharlene Cartwright Robinson to join in a press conference on the issue of VAT. While both parties both oppose VAT, this is where they begin and end on the matter, however.

VAT is the means implemented by the former interim government last year to raise taxes to pay down the $260 million loan guaranteed by Britain. In fact, this was restated in last Monday’s Appropriations Committee meeting by chief financial officer Hugh McGarel Groves. It was also repeated in a letter sent last Monday to Ewing from Mark Simmonds, Britain’s minister for the Overseas Territories, who rejected a request for a delay in the imposition of VAT in the TCI and confirmed that the new tax will take effect as planned on April 1, absent a credible alternative.

The PNP government feels that VAT is not enough and has complained strongly that it is not a democratically imposed tax. However, the government wants to impose other taxes, which will raise what it estimates to be 150 percent more tax revenue. In fact, finance minister Washington Misick has said his suggested taxes will “improve the economy of the Turks and Caicos Islands”. What it appears he meant was that such new taxes will improve the income of the government not the economy itself.

The opposition PDM, while against the imposition of VAT, has not suggested any new taxes. The party has issued a position paper on the issue, which states that the fundamental budget problem is failure to collect all the current taxes due and the extraordinarily high cost of health care.

PDM leader Cartwright Robinson said at an earlier press conference that there has been no work by the PNP government on reforming the NHIP health plan.

Cartwright Robinson said that her party was opposed to VAT primarily because it will raise the cost of living.

“When you change the basic tax structure of an entire country, the elected government representing the people needs to make that decision,” said Cartwright Robinson

Following the election of the PNP as the new government last November, Ewing and his finance minister Washington Misick have been seeking a delay of six months in the implementation of VAT.

However, according to overseas territories minister Simmonds, a delay in the implementation of VAT would present significant risks.

“A delay at this stage would risk undermining the credibility of the government's commitment to VAT particularly with those businesses that have invested in preparation. And I am not convinced that delay would make it easier for you to find and commit to the introduction of a credible alternative. I fear that a property or income tax would be likely to attract opposition at least as strong as VAT,” he said.

Simmonds went on to say that any such delay would be unlikely to diminish the opposition of those businesses who will have to pay tax for the first time or open their books or lose some of the benefits of what he described as “excessive concessions” granted by previous administrations.

He also pointed out that delaying the implementation of VAT would require the government to cut public spending further than would otherwise be necessary.

“I think you have a choice between pressing ahead with the introduction of VAT from 1 April or making a clear commitment to introducing a credible alternative to VAT such as property or income tax. I should be clear that I believe that, at this stage, the best option for Turks and Caicos is to press ahead with implementation of VAT,” Simmonds said.

Tinkering with the current disparate and unsatisfactory mix of taxes would not address the underlying weakness and unfairness of these and would not offer a credible alternative to VAT, he added.

According to SImmonds, the previous elected PNP government had already decided that VAT had significant advantages over property and income taxes but, nevertheless, invited Ewing to submit a new fiscal and strategic policy statement by the end of January.

“While you are finalising this I expect preparations for VAT implementation to continue at full speed, including investment in planned new IT, so that it can take effect on 1 April,” Simmonds added.

However, Simmonds’ claim that the previous PNP government had endorsed VAT was disputed in a subsequent statement by then finance minister, Floyd Hall.

“That statement is completely false. While it is the case that the former PNP had agreed to explore the option of selecting one of four taxation models being imposed on us by advocates for the Organization for Economic Corporation and Development (OECD), the European Union, IMF and the FCO to obtain compliance with international tax standards in our financial services industry and to achieve revenue sustainability, it was never the case where VAT was selected as a done deal for implementation in the Turks and Caicos Islands by our PNP administration,” Hall said.

The new tax was signed into law during the term of the previous interim administration run by Britain following the suspension of elected ministerial government in the TCI in 2009 as a result of widespread and systemic government corruption during the PNP’s previous term in office from 2003 to 2009.

Unrestrained government spending during those years brought the TCI to the verge of bankruptcy, necessitating a $260 million loan guaranteed by Britain and other measures to enable the territory to balance its budget.

By Caribbean News Now contributor

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