By Caribbean News Now contributor
PROVIDENCIALES, Turks and Caicos Islands -- In what is shaping up to be a replay of events in the sister overseas territory of the Cayman Islands, where then premier McKeeva Bush attempted to defy Britain’s insistence on an agreed financial framework but was ultimately forced to back down, the Turks and Caicos Islands (TCI) House of Assembly is scheduled to meet on Wednesday when, according to sources, a repeal of the value added tax (VAT) legislation will be on the agenda.
VAT was approved by the then Consultative Forum and signed into law last year and is due to take effect on April 1 this year.
Britain’s Foreign and Commonwealth Office (FCO) has rejected all attempts by the recently elected Progressive National Party (PNP) government to defer its implementation for at least six months, unless or until a viable alternative to VAT is proposed.
Finance Minister Washington Misick
In comments reminiscent of intemperate remarks made by former Cayman Islands premier Bush, TCI finance minister Washington Misick has stated that he will refuse to collect the tax.
“The governor can cancel my ministry, they can use their prosecutorial powers against me, I do not care because this is what I came here for,” Misick said.
In the Cayman Islands, Bush was subsequently arrested on charges of theft and corruption and removed from office. Some in the TCI have expressed concern that Misick could suffer a similar fate in that he may be one of those still under investigation by the special investigation and prosecution team (SIPT).
Earlier reports indicated that a payment by the Sandals Group as a $1 million-plus campaign contribution to the PNP was routed through both the Prestigious Properties real estate firm run by Washington Misick and also through the law firm of Misick and Stanbrook (see earlier story
). In the case of Prestigious Properties, an examination of the files reportedly revealed hand written notes redirecting the funds to the personal accounts of Washington’s brother, former premier Michael Misick, now under arrest in Brazil pending extradition to the TCI to answer questions concerning alleged malfeasance while in office.
Many in the Cayman Islands pointed to the imposition of direct rule in the TCI by Britain in 2009 in an attempt to persuade Bush to moderate his intransigence. Now the TCI could well be looking at the turn of events in the Cayman Islands following threats to defy the FCO.
VAT has been embraced by the FCO as the way out of the financial difficulties facing the TCI. Massive malfeasance in office and systemic corruption on the part of the former PNP government, coupled with debts and liabilities associated with the National Health Insurance Plan and two new hospital buildings, left the TCI some half billion dollars in debt, requiring Britain to guarantee a $260 million loan to prevent default and bankruptcy.
Chief financial officer Hugh McGarel-Groves believes that VAT is the only way to bring the government from yearly deficits or break even to a surplus, which will not only cover the health costs but also service the remainder of the debts.
However, McGarel-Groves has admitted VAT may raise the prices of taxable items by 3 to 4 percent. The politicians believe the costs to islanders will be much higher.
While the arguments for the repeal of VAT are based on the tax being regressive, complicated and expected to raise the cost of living, the two main political parties, both of whom have come out against VAT, depart on the way forward without it, which is likely to fuel the debate in the House this week.
The PNP government wants to substitute other direct tax measures, which it believes will raise half as much again as VAT estimates. The opposition Peoples Democratic Movement (PDM) believes the answer lies in cost savings associated, principally in the area of health care, and more diligent enforcement of existing taxes.
At last week’s meeting of the Appropriations Committee, opposition Sharlene Cartwright Robinson, who chairs the committee, questioned McGarel-Groves and other government officials relative to the preparations for VAT.
McGarel Groves stated that, while implementation of VAT was still scheduled for April 1, the $500,000 software necessary to run the plan and train government staff had yet to be concluded. It was also revealed that no decision has yet been made as to how to handle the tax on millions of dollars of existing inventory owned by local businesses. These businesses had paid 30 to 33 percent import duty tax and now must add the 11 percent VAT to their prices on these goods unless government refunds all or part of the customs duty already paid.
Another widely questioned potential problem was the report that the customs department must keep track of the customs rebates businesses are qualified to recover. However, the customs department failed to show up for the Appropriations Committee meeting.
Under VAT, the relevant businesses will enjoy a reduced customs duty of 15 percent and be qualified to recover duty when they sell their items. However, it was learned the duty will not be refunded, only credited against future duties. This accounting is due to be handled by the customs collection department. This will relieve the resorts, which will replace their 11 percent accommodation tax with the 11 percent VAT and now be qualified to receive a rebate on the duties for supplies and goods imported for their operations.
It was also learned that a VAT Commissioner is to be hired but has yet to be identified.
Also reported at the Committee meeting was that businesses have been slow in registering and most are overdue. Fines may be assessed on those businesses failing to register by the newly revised registration date of April 1.
The Permanent Secretary of Finance, when questioned at the meeting, did not have available an estimate of how much VAT is expected to raise.
If the House attempts to repeal VAT, the legislation may be disallowed by Governor Ric Todd on instructions from the FCO.