If former Prime Minister Owen Arthur had his way the special 7.5 per cent Value Added Tax (VAT) rate, reserved for the hotel sector and other tourism related goods and services, would be scrapped.
He argued that the measure has left Government in a bind and that not only could the country not afford it, but that the reduction had in fact “perverted” the VAT.
Delivering his contribution to debate on the 2017/2018 Estimates of Revenue and Expenditure, Arthur, who repeated calls for the VAT to be lowered from 17.5 per cent to 16 per cent, complained that the tax had failed to yield the expected revenue because it had been undermined by exemptions and zero-related items.
“Every effort has been made to reduce the base of the VAT by having our VAT convoluted with a larger number of zero rated and exempt items . . . and therefore the base has been narrowed,” he said, explaining that the tax, which was introduced back in 1997 to replace 11 indirect taxes and 44 fees, was designed to cover consumption.
“The most recent study that I have seen from the IMF [International Monetary Fund] indicated that while initially the VAT was covering a 100 per cent of consumption, the VAT was only now covering 70 per cent of consumption.
“It has to be at some stage that the VAT has to be revisited in relation to its initial intent. Drop the rate from 17.5 to 16 per cent, remove most of the exemptions and zero rates,” Arthur suggested.
He said while tourism players were able to claim substantial sums against the 7.5 per cent VAT rate, the cash strapped country could no longer sustain the practice and it should therefore be phased out.
“The input tax is now 17.5 per cent and the output tax is 7.5 so there is a ten percentage point differential that is causing this massive build up in refunds that you cannot pay back and all I am telling the Government is that it should accept the advice and even if the tourism people may not be pleased, you have to remove such a wide differential and standardize the rate between the two over a period of time,” he urged.