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Announcement by Prime Minister Stephenson King on the VAT Policies

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7 December 2009

Ladies and Gentlemen, I am pleased to announce that the Cabinet of Ministers, at its meeting on 18th November 2009, approved a number of policies related to the implementation of the Value Added Tax in St. Lucia.

Before I give details on the approved policies, let me provide you with some brief background information to the introduction of VAT in St. Lucia. You will recall that discussions on the introduction of VAT within the OECS started as early as 2003. This policy was reiterated in the 2007/08 budget address by the former Prime Minister and Minister for Finance the Honourable Sir John Compton. In fact, by introducing the VAT, the Government of St. Lucia is abiding by the decision taken in July 2003 by the Monetary Council, the highest decision making body of the Eastern Caribbean Central Bank, to approve the implementation of the VAT in the ECCU as recommended by the OECS Tax Commissioners.

Since the decision of the Monetary Council, Antigua, Dominica and St. Vincent and Grenadines have already implemented VAT, while St. Kitts and Nevis, like St. Lucia, is preparing to do so soon. Grenada has already committed to implementing the VAT in February 2010.

As stated by the then Prime Minister in the 2007 Budget, and as has been repeatedly emphasized by the VAT Implementation Team, the VAT will not be an additional tax but will replace a number of other indirect taxes.

Cabinet by Conclusion No 1074 of 29th November 2007 approved the establishment of the Value Added Tax Implementation Project Office with the mandate to prepare St Lucia for the implementation of a VAT system in the most effective manner. The staff of the project office has done a tremendous amount of work in educating the public on VAT and how the new system works. However, specific information on how the new system will affect individual taxpayers have not been disclosed as the VAT policies were only recently approved by the VAT Steering Committee and Cabinet. With the approval of the VAT policies, the project office staff will now be in a position to meet the various stakeholders including the business community, trade unions, churches, sports and social clubs and other community organizations to explain in precise terms how the VAT works and the likely impact on the membership of these organizations.
As part of the public sensitization Cabinet has mandated that the staff of the project office demonstrate the impact of the VAT on the prices of a typical basket of goods and services so that the public will be better informed of how VAT is likely to impact on them. A White Paper has been prepared for public consultation and will be used in disseminating information on the VAT policies during the consultations.

I take this occasion to ask members of the public to avail themselves of the opportunity to be educated about VAT and to ask the pertinent questions at the various presentations.

Ladies and Gentlemen, Government views the introduction of VAT as part of its strategic policy response in modernizing the tax system and thereby building the resilience of the economy to vulnerability and external shocks. The need for this strategic approach has become even greater in light of the impact of the global recession which calls for greater resilience in the structure of our economy and to build the fiscal space necessary for Government to provide the kind of policy response required.

The VAT has been proposed as the preferred option as this tax is considered a more efficient, simplified and modern form of indirect taxation. The VAT, which is a tax on consumption, is a broad base tax resulting in increased revenue, and reductions in relatively high tax rates.

The policies that have been approved by Cabinet are as follows:

1.A standard VAT rate of 15 percent and a rate of zero percent for goods and services in the zero-rated list. These goods and services include goods produced for exports and agricultural inputs.

2.A VAT registration threshold for companies transacting business to the value of EC$120,000.00 per annum.

3.The replacement of the following taxes/fees with VAT:

a.Consumption Tax
b.Motor Vehicle Rental Fee
c.Mobile Cellular Telephone Tax
d.Environmental Protection Levy

4.Exemption from the payment of VAT on a list of supplies including basic food items, financial services, medical services, prescription drugs or medicines, education services, day care services and local transportation with a driver, among others.

5.Specific rates of hotel accommodation tax based on a grading system for hotels.

6.Adjustment of excise tax rates on motor vehicles and other products with ad-valorem rates to keep the effective rates of tax on these products unchanged after the introduction of VAT.

7.Strengthening social safety nets to better target assistance to the poor and vulnerable in our society.

8.The provision of options to importers during the transition phase just prior to implementation of VAT to avoid businesses falsely claiming input tax credit during the early stage of implementation. Details of the options will be disclosed at a later date after further consultations on the issue.

9.The location of the VAT Unit within the Inland Revenue Department.

10.The establishment of a special VAT Refund Account in accordance with the provisions of the Financial Administration Act.

Let me therefore re-affirm Government’s commitment to implementing the VAT. However, the date of the commencement of VAT in St. Lucia will be determined and announced once Cabinet has considered the report on the outcome of discussions of the draft White Paper.

I thank you.


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