30% rich tax draws scrutiny

“The Government has acknowledged its commitment to fiscal prudence and macroeconomic stability,” PwC’s territory Senior Partner Brian Hackett said in the company’s annual Budget review.

He noted Government’s aim for a balanced Budget by 2018 is still on track, but for the targets to be achieved it was “imperative” that the business sector and the wider public step up “and fully accept our role in the context of the economic climate,” and taking the opportunity for collaborative fiscal discipline and sacrifice.

While the firm remained “cautiously optimistic” about the measures listed by Finance Minister Colm Imbert on Friday, the reintroduction of the Property Tax, the new “millionaire’s tax” and the “online shopping tax,” drew scrutiny.

Imbert has proposed a sweeping three percent Property Tax starting next year, effectively ending the moratorium that had lasted from 2010 to 2016. PWC noted that it was “difficult to assess the reasonableness or otherwise” of the tax until the government gave a sense of the valuations applied to different categories of property.

Also coming into effect from January 2017 is a proposed 30 percent tax on incremental income over $1 million for individuals and companies.

While Imbert noted that this would net Government $560 million in extra revenue, PwC said that it would bring back challenges to tax collection that had been eliminated with the introduction of a flat rate, including income splits between two or more persons or entities, as well as under-reporting of income.

“While we understand the rationale behind the measure and trust that citizens would step up… we hope that this is temporary and the Government will revert to a single rate system,” the company said.

Perhaps the most talked about new tax that Imbert announced was the tax on online purchases, set for October 20. The new charge will only apply to goods brought into TT via couriers or directly imported using airfreight.

The tax will be collected the same way value added tax and customs duties are already collected.

Since the tax comes online in three weeks, PwC noted there was an “urgent need” for further clarification on whether or not there would be a threshold on the value of goods being taxed; if the tax is specifically for goods brought online or for everything imported through couriers or airfreight; will the tax be imposed on goods from any country, including CARICOM.

The firm also questioned on what value would the tax be applied— either to VAT, customs duties or some other value. The company’s review also stressed on the importance of economic diversification.

“For an economy that has been so heavily dependent on oil and gas for decades… diversification is not only a wish, it is an absolute necessity and it must begin now,” PwC’s Territory Tax Leader Allyson West said. The company’s review was somewhat critical of the lack of prominence for diversification in the Budget.

“Save for the mention of the Sandals project in Tobago and of added incentives for agro processing an yachting repairs, this year’s budget does not provide much detail on the roadmap for diversification— what are the other sectors targeted?” PwC said.