Statement on the Draft Income Tax Bill by Prime Minister and Minister for Finance - February 23, 1999

Mr. Speaker, consistent with the approach of this Government to involve the people of Saint Lucia in policy formulation and development, the Minister of Finance has circulated a Draft Income Tax Bill for comment and discussion. The Bill has been circulated to our major social partners including the Chamber of Commerce, the Employers’ Federation and our Trade Unions. You will recall, Mr. Speaker, that the Minister of Finance had advised in the 1998/99 Budget that Government would introduce a new Income Tax Bill during the present fiscal year.

Mr. Speaker, the debate today (Tuesday, February 23, 1999) is not therefore, about the new Income Tax Bill. It is about commitments given by the Minister of Finance to introduce a homeowners’ savings plan, an individual registered retirement savings plan and an allowance for interest paid on student loans. This Government is not known for clandestine parliamentary behaviour.

Mr. Speaker, when this Government circulates proposed legislation for discussion, it means that it wishes to involve our people in shaping and refining its proposals. This is why I have repeatedly advised that the Income Tax Bill is a draft; it is not cast in stone. The Government understands and accepts that changes have to be made.

The management of dialogue and discussion is a sensitive matter. It is never easy to shape and arrive at consensus. It is even more difficult when some confuse their privileged positions with the interests of the country. The Government expects that those who are brought into the process of engagement and discussion will handle the process with sensitivity and with honesty. Government will vigorously respond to those who insist on spreading untruths, half-truths and distortions.

FEATURES OF NEW INCOME TAX BILL

Today, I wish to highlight some of the principal features of the Bill.

The effects of the new Income Tax Act on persons at the lower end of the earnings scale is that they will pay less income tax as the threshold (i.e. the amount of annual income at which persons will pay tax) is moved from $10,000 to $15,000. While it is proposed not to change tax rates, the affects of increasing the tax threshold will be to reduce the incidence of direct tax on individuals who earn less than $15,000 per year or $1,250 per month. It is estimated that some 5,000 persons will benefit from this proposal. Others will also benefit, for example, persons who presently pay an annual tax of $782.50 will, under the new Act, pay only $554.40.

be absorbed in the increase in personal allowances.

It must be emphasized that the Government has on other occasions stated its intention to promote savings, and thus it is intended that the instruments that will encourage and maintain savings in the country will be incorporated in the new Income Tax Act. Government has no intention to tax income from savings. This does not, however, mean that the issue should not be discussed.

Additionally, contrary to certain comments that have been circulating, the Government has not indicated its intention to remove the mortgage interest deduction. Curiously, the Draft Bill plainly states that mortgage interest deduction will continue. Yet the mischief makers are busy telling the middle class that the Government intends to abolish mortgage interest deduction.

Companies will also benefit by the proposals. A pooling system of depreciation has been introduced and in accordance with the budget announcement, expenditure on commercial buildings will for the first time, be allowed capital cost allowances. This will give an incentive to our commercial enterprises to erect new buildings that will be a boost to the construction sector.

Additionally, a simple system of group relief is introduced, thereby giving companies within the same group the opportunity of claiming amounts paid to each other for specific purposes. It is proposed that the provisions for the deduction of interest be modified to prevent deductions being claimed on loans used to earn tax-exempt income.

It is intended to simplify the administrative process of the direct tax system. Thus as a result, it is the intention to introduce a system of full self-assessment, whereby taxpayers will determine for themselves the amount of tax that they have to pay without the excessive intervention of the administrators. Also, we intend to introduce certain penalties that will impose liability on company directors in certain instances. Further, it is the intention to promote a working relationship between the Inland Revenue and the Customs and Excise Department.

UNFOLDING OF PROCESS

Since the circulation of the Draft Bill, the Comptroller has received several comments. I wish to thank those persons and organizations that have taken time to study the Draft. Some of the comments have been particularly helpful.

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