Tax Reform: GST OR VAT RECOMMENDED FOR ANGUILLA

L-R: Chief Minister Hubert Hughes, Mr. Ved Gandhi, Hon. Jerome Roberts and Dr. Wycliffe Fahie

The suggestion has been made by Ved Gandhi, Assistant Director of the Fiscal Affairs Department of the International Monetary Fund in Washington DC. He was one of two independent consultants who were contracted by the British Government to review Anguilla’s 2011 budget. Recently, he was requested by the Anguilla Government to advise on a new tax structure for the island and is doing this in cooperation with the Government’s Tax Reform Working Group, headed by the Hon. Jerome Roberts, Adviser in the Ministry of Finance.

Members of the public and Government Officials at Tax Reform meeting

Mr. Gandhi, along with Chief Minister and Minister of Finance, the Hon. Hubert Hughes, Mr. Roberts and Dr. Wycliffe Fahie, Finance Officer, met with members of the public on Thursday, August 18. The meeting was held at the Rodney MacArthur Rey Auditorium at which the tax reform initiatives were discussed.

Members of the public and Government Officials at Tax Reform meeting

Mr. Gandhi spoke at length during which he examined the varied problems and anomalies inherent in the island’s current tax system and what could be done to establish a better structure. He made the point that Import Duty and Surcharges constituted Anguilla’s main, or anchor, tax base. He identified Stamp Duty, Hotel Accommodation Tax, Motor Vehicle Licences, the Bank Deposit Levy and Property Tax as being some of the other leading revenue sources, along with a number of smaller taxes.
“You get almost 178 million EC from the entire tax system,” he told the people at the meeting. “Out of that, $72 million comes from Import Duties and Surcharges.” He stressed that there was a need to re-examine the Customs tariff on various items where there were clear anomalies.

Among the many anomalies he pointed out, were the following: the duty on white potatoes at 5% but zero on sweet potatoes; zero on toothpaste but 20% on toothbrushes; zero on marine paints and varnishes but 20% on automotive paints and varnishes. “Once you have itemized rates, the way you have on Customs duties, you are bound to end up with these kinds of anomalies in the rates,” he declared.

Mr. Gandhi was of the view that one of the difficulties in raising Government revenue was that the tax system, despite the many contributing measures it comprised (some of them not needed), was too narrow. “Without any changes in the tax system, there will be further increases in Import Duty and Surcharges; increases in existing taxes and selected services, Property Tax and other smaller taxes and fees,” he stated.

Mr. Gandhi continued: “There is an urgent need for a new anchor. Import Duty is a poor anchor as a tax system. You need a new system which must be in the form of a broad-based Goods and Services Tax (GST). Most of the problems with the current tax system will be removed or go away with one hammer, and that hammer will be the GST…The large duty exemptions that big projects seek from the Government will evaporate in one go and there will be no more abuses. GST will tax everything… GST is sometimes called VAT because VAT is a mechanism of collecting taxes on the consumption of goods and services. It is basically GST.”

He listed various Caribbean islands where VAT had been implemented, ranging between 15 and 17 and a half percent. He further stated that of the 187 countries in the world, 132 had implemented VAT by 2010 (including his own country, India). “It is spreading like wild fire,” he asserted. “One should not throw away the GST as a possible anchor of the tax system without seriously considering it.”

Mr. Gandhi acknowledged that a lot of preparatory work would have to be done before the tax could be implemented in Anguilla. He said that if and when GST came to the island, it would replace Import Duties and Surcharges and also eliminate many of the other existing taxes and fees such as the Environmental Levy, Communication Levy and Entertainment Tax.

“Expand the tax base and move towards a broad-based GST and solve the problems the Government is going to have,” he advised, stating that the Working Group on Tax Reform would be required to chart a course for a new structure in the near future.

“The key is either for GST to replace Import Duty and Surcharges or a combination of Income Tax at low rates,” he concluded. “One thing is clear: continuing with the current tax system, with its problems and negatives, is really not an option for Anguilla. Tax reform in the near future is therefore a must.”

Mr. Gandhi’s presentation was followed by a question and answer period. Mr. Roberts thanked the people for attending the meeting and informed them that Mr. Gandhi would be back in Anguilla later on.