Reasons why St.Vincent and the Grenadines is preparing for the implementation of the Value Added Tax.

Prime Minister, Dr. the Hon Ralph E. Gonsalves in his 2006 Budget Address outlined plans for the introduction of a modern Value Added Tax (VAT), and Excise Regime in St.Vincent and the Grenadines by January 2007. This decision was based on studies conducted by three independent organizations, which recommended that our current system of taxation needed to be reformed. The first of these studies was done by KAIRI Consultants, a firm from Trinidad and Tobago contracted by the Government of St. Vincent and the Grenadines through a project funded by the Caribbean Development Bank.

The second study was done by the Caribbean Regional and Technical Assistance Centre (CARTAC) in Barbados as part of Technical Assistance to St. Vincent and the Grenadines. This study also recommended the VAT as a reform measure.

A third study was done by the OECS Tax Reform Commission which was established by the Monetary Council of the ECCB to also examine the Tax System of the OECS, and as such St. Vincent and the Grenadines benefited from this study which also recommended the VAT System.

The VAT is therefore part of regional Tax Reform with all the countries of the OECS preparing for the implementation.

The findings of these studies indicated that there were many inefficiencies and weaknesses in the system, which created a burden to the taxpayers and also the administration. Highlights of some of these findings are:

• There are too many indirect tax types in the current Tax System, which make the system complex.
• There are many different rates, and many pieces of out dated legislation.
• Goods are being taxed heavily while some services are not taxed.
• The system has elements of cascading, that is “tax on tax” which distorts production and consumption.
• Regional integration is now forcing countries to harmonize their taxation system in order to avoid competitive distortions across countries.

To this end, the Government of St. Vincent and the Grenadines has adopted these recommendations and sort to establish a VAT Implementation Unit to initiate the reform process.