Thursday, June 28, 2012

PM DELAYS VAT BY ONE MONTH

    During the second reading of the VAT bill, Dr. Anthony announced that VAT will come into effect on October 1, one month later than the initial proposed date of September1, 2012. The PM announced that certain measures had to be put in place and that by allowing the extension we will be VAT ready.
He, though not going through the whole bill made special reference to Clause 10, 41 to 45 and 71 to 76. These he said are crucial to the implementation of the bill and he thought it necessary to go through  them. (You can request a copy of the Bill from this blog. Send your request to thesaltofchoiseul@hotmail.com and in the subject area write bill)
In his last budget address the PM made the following statements with regards to VAT.

APPROVED VAT POLICIES
"Mr. Speaker, I now wish to address the bundle of VAT policies that have been approved by the Government. These are as follows:
1.             VAT will replace consumption tax, hotel accommodation tax, motor vehicle rental fee,
mobile cellular telephone tax and the environmental protection levy;
2.             A standard VAT rate of 15 percent and a rate of zero percent will be charged on certain
goods and services. However, in respect of the hotel sector and related services, a reduced rate of 8% will apply until March 31, 2013. Between September 1, 2012 and March 31, 2013, the impact on the sector will be assessed and a final determination will be made on the rate to be applied beyond March 31, 2013;
3.             A threshold for registered tax payers of $180,000 per annum will be established. This
means that it is not mandatory for businesses earning less than $180,000 per annum to register for VAT. The threshold is based on the annual sales turn
-over of the tax payer;
4.             A VAT rate of zero percent will be legislated on certain supplies. Some of these supplies
include, but are not limited to:
(a)            Goods to be exported;
(b)            Goods for sale at duty-free shops;
(c)             Fuel;
(d)            Fresh eggs;
(e)            Uncooked pasta;
(f)             Water; and
(g)            Electricity."

5.               The following goods and services will be exempted from payment of VAT, but this list is
not exhaustive:
(a)            Domestic residential rental;
(b)            Educational services;
(c)             Financial services;
(d)            Insurance services;
(e)            Medical services;
(f)             Religious services;
(g)            Local transportation services;
(h)            Postal services;
(i)              Certain agricultural inputs; and
(j)             Certain food items, for example:
i.                      Chicken,
ii.                     Certain types of fresh or chilled fish,
iii.                    Milk,
iv.                   Butter,
v.                    Potato,
vi.                   Certain types of fresh or chilled vegetables,
vii.                  Certain types of peas and beans,
viii.                 Certain types of fresh fruit,
ix.                   Rice,
x.                    Flour,
xi.                   Cane sugar,
xii.                  Certain types of preparations for infants,
xiii.                 Unsweetened biscuits,
xiv.                Bread, and
xv.                 Table salt.
6.                              While the standard VAT rate of 15% will be charged on medical supplies, the
Government has secured CARICOM’s approval to remove the import duty on medical supplies. This will mitigate the impact of VAT on consumers.
7.                             During the transition period leading up to the date of VAT implementation, the
Government has agreed that registered businesses would have the option of depleting stocks to minimum levels. Alternatively, Government in conjunction with SLASPA, would allow free storage at the Ports for a three month period. There will be a third option. Registered businesses which have existing storage facilities will be afforded the option of converting those facilities into bonded warehouses during the transition period.
8.               The Government has also agreed to the establishment of a special VAT Refund Account
in accordance with the provisions of the Financial Administration Act. This is to facilitate the timely processing and payment of refunds to tax payers as the Government recognizes the importance of minimizing the effects of VAT on the cash flow position of tax payers.


Text Box: Page 29 of 70Impact on Consumers
Mr. Speaker, having outlined the specific VAT policies, I wish to focus on how VAT is likely to impact the average consumer in Saint Lucia. As indicated earlier, VAT will be replacing a number of existing taxes and, consequently, its impact will be cushioned and it may not necessarily result in higher prices in all cases. In fact, based on analyses conducted by the VAT Office, the net effect of the VAT is likely to result in more items not having additional taxes than those for which taxes will increase.
The following are some examples of the likely impact of VAT on the net taxes payable by consumers on those products:
Item
Existing   Rate   of
Consumption Tax
Proposed
VAT Rate
Net         Tax
Payable
Cheese
0%
15%
Higher
Soda
0%
15%
Higher
Dish Washing Liquid
10%
15%
Higher
Chicken
0%
exempt
Unchanged
Flour
0%
exempt
Unchanged
Lentil Peas
0%
exempt
Unchanged
Eggs
0%
zero rated
Unchanged
Pasta
0%
zero rated
Unchanged
Unsweetened Biscuits
0%
exempt
Unchanged
Sweetened Biscuits
15%
15%
Unchanged
Shoes
15%
15%
Unchanged
Rice
5%
exempt
Lower
Sugar
5%
exempt
Lower
Margarine
5%
exempt
Lower
Powdered Milk
5%
exempt
Lower
Evaporated Milk
5%
exempt
Lower
Bread
5%
exempt
Lower
Bottled Water
20%
15%
Lower
Baby diapers
10%
exempt
Lower
Deodorant
30%
15%
Lower
Cellular Phones
35%
15%
Lower
Galvanize
20%
15%
Lower

There will be some items that will attract more taxes either because the existing rates of Consumption Tax are lower than the 15% VAT rate or the method of calculating the VAT will compound the taxes payable since VAT is levied on a combination of import duties, service charge and excise tax (for those


Text Box: Page 30 of 70items which attract excise tax). However, those items are in the minority. Therefore, most consumers should not be significantly worse off after VAT is introduced.
The other issue that must be considered is that VAT is not only levied on goods but also on certain services, some of which are not currently subject to tax. This is likely to result in consumers of these services paying more in taxes than they do now. However, with a number of services being exempted from VAT, we are confident that the tax would not be too onerous on consumers of these services.


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