Tax-free 2004 budget for St Kitts & Nevis: Full report

St. Kitts and Nevis Prime Minister and 
Minister of Finance, Dr. Denzil Douglas 
presenting the 2004 Budget Address in 
the National Assembly on Tuesday 

Thursday, December 18, 2003

BASSETERRE, St. Kitts: St. Kitts and Nevis Prime Minister and Minister of Finance, Dr. Denzil Douglas in presenting his tax-free 2004 Budget on Tuesday said taxi-drivers, farmers, students, farmers will benefit.

"This Government, which has an outstanding track record of protecting the poor and of showing great care and concern for all citizens and residents of this country, would only introduce tax measures as a last resort," said Dr. Douglas, adding: "I am, therefore, pleased to announce that this year's budget is a tax-free budget."

Prime Minister Douglas in a three-hour presentation carried live on several radio stations and ZIZ Television said his St. Kitts-Nevis Labour Party Administration would ensure that nationals enjoy the full benefits of the operations of the Royal St. Kitts Marriott Beach Resort and the massive growth in the tourism sector that is expected over the next five years. 

"We have been insisting that foreign investors would only be permitted to open businesses in areas where, because of the required level of expertise or capital, locals could not operate effectively and competitively. But this is a defensive strategy that may not be sustainable in the context of globalization," said the Prime Minister.

He said he was convinced that nationals must be empowered to take up many of the entrepreneurial opportunities that are being created in the local economy and Government is determined to refine its tax concessions regime to provide incentives for foreign investors to enter into joint venture arrangements with local persons.

Next year Government will establish a Business Fund that will provide assistance to small entrepreneurs with viable business projects, but without the means of meeting the onerous requirements of existing financial institutions.

He said farmers must also get a piece of the action and to ensure that they maximise the benefits that accrue from increased tourist arrivals and provide local products, including agriculture produce.

Prime Minister Douglas said that the Development Bank of St. Kitts and Nevis has been directed to set aside some of its resources for lending to farmers at interest rates not exceeding 7.5%.

The Legal Department has been directed to speed up the process providing leasehold or freehold titles to farmers so that they can approach any bank with adequate security. 

"Our taxi-drivers and tour operators must also get a piece of the action. I find the current fiscal regime, which allows taxi-drivers to import vehicles with no more than 14 seats free of duty, overly restrictive in the context of the surge of tourist arrivals expected next year. We must provide the taxi-drivers the means of modernizing and improving their vehicles to move large numbers of tourists with great convenience and comfort, and of adequately servicing the massive cruise ships that are expected visit our shores," said Prime Minister Douglas, announcing that that over the 15-month period commencing January 1, 2004, taxi drivers would be permitted to import vehicles with seating capacity of 37 or less, free of duty and consumption taxes.

Saying that local students and prospective students must also get a piece of the action, Dr. Douglas was of the strong view that our people must be equipped to take up managerial and technical positions in tourism enterprises or to start their own businesses offering specialized services in the tourist sector.

He said his government will initiate a new training programme that would provide financing to persons interested in pursuing studies in key areas of vital importance to the tourism sector and that in early in January next year, a survey will be carried out to identify the areas of expertise that would fall under the programme and shortly afterwards the programme will be established.

"Mr. Speaker, I know that these initiatives will cost money, and will add to our fiscal challenges in the short-term. I believe, however, that overtime these initiatives will bear great fruit and increase revenue collections by amounts far in excess of cost of these programmes," said Prime Minister Douglas.

He noted that some taxes are no longer feasible in the context of globalisation and the Alien Loans Levy, which is applied to foreigners when they borrow monies locally, is now proving to be inefficacious.

"Given the global nature of banking, some local financial institutions are adopting the practice of booking the loans in other countries to avoid the levy. This means that we get neither the benefit of the Aliens Loan Levy nor the benefit of the corporation tax that would have been payable in respect of the interest on the loan if it were booked in St. Kitts and Nevis," said Prime Minister. 

"Much of this tax falls on the immigrant workers in our Federation, including those from Santo Domingo and CARICOM Countries, because they are not able to avoid this levy in the same way as the large foreign companies operating here," said Dr. Douglas, adding: "I therefore propose the abolition of the Aliens Loan Levy for fiscal year 2004."

Government he said will continue to require that loans made to foreign entities be submitted to the Ministry of Finance for prior approval.

Pointing out that the Federation's land and house tax legislation is outdated, he said it must be recognized by tax administrators all over the world that market value-based property taxes, are much more user-friendly and easier to administer than the archaic rental value based property taxes.

St. Kitts and Nevis has been participating in the ECEMP project for the modernisation of taxes and "if we are to benefit from the technical and financial resources available in respect of property tax administration, we must bring our tax system in line with the modern trends that have been adopted by the other countries of the region."

Government proposes to pass legislation next year that would modernise property tax administration and replace the rental value-based tax system with a market value-based tax system. "I must emphasize, however, that these innovations will not carry up the rate of taxes. In fact, we will drop the rate sufficiently to ensure that the taxes payable by property owners remain unchanged during 2004," said Prime Minister Douglas. 

Dr. Douglas said the programme of property reassessment is continuing so that if a property is currently undervalued, then the reassessment could result in a change in the taxes payable. "Such a change, however, would not result from the implementation of the new system, but from the ongoing programme of reassessments that the Inland Revenue Department has been pursuing over the past few years," said the Minister of Finance, mentioning that new legislation would give special concessions to small low-value houses. 

"We propose to set a threshold such that any house with a value below the threshold would not be subject to taxes," said Dr. Douglas, who said this is "intended to ensure that home ownership for low-income families does not become too burdensome," as "this policy initiative is also consistent with our strong focus on the protection of the poor. We believe that home ownership is for both rich and poor, and we are determined to remove the impediments to home ownership by low-income families."

Next year, Government plans to be more vigilant in tax collection and the programme of tax audits initiated by the Inland Revenue Department will continue and will form part of the ongoing activities of the Department.

Consultants have been employed from overseas to assist in implementing the audits and in training our tax auditors. "Their compensation is based on a fixed daily rate and it does not depend in any way on the amount of taxes collected. Moreover, as soon as we are satisfied that our local Tax Auditors can carry out the audits without technical support from the Consultants, we will bring the consultancy agreement to an end," said Prime Minister Douglas.

He said such actions are necessary because "no modern tax administration can operate effectively without the ability to carry out their own tests and checks to establish the accuracy, veracity and completeness of the returns submitted by taxpayers." 

Dr. Douglas said the selection of entities for audit is based on objective criteria that are used internationally. "No person or entity is being targeted. We therefore urge taxpayers to give the Auditors your fullest support as they carry out their mandate of ensuring that the tax laws of the Federation are implemented in a fair and equitable manner," urged Prime Minister Douglas.

He said Government is also in the process of implementing a Customs Modernisation programme with assistance from the Crown Agents in London, who has made available to the Customs Department two seasoned senior Customs Officers from Her Majesty's Customs and Excise in the United Kingdom.

"This programme will include, among other things, organisational development, further computerisation, human resource development, anti-commercial fraud activities and audit," said Prime Minister Douglas.

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