OECS Tax Reform Commission releases report

Tuesday, February 17, 2004

BRADES, Montserrat (GIU): Members of the OECS Tax Reform and Administration Commission say leaders of the sub-regional grouping have agreed on a strategy for transforming OECS economies and achieving sustained growth rates of 6.0 percent per annum, high quality jobs, a reduction in employment to 6.0 percent or less, and a level of poverty below 6.0 percent.

"The foundation of this sustained growth would be a significant improvement in the level and efficiency of investment, the development of an effective and appropriate Information and Communication Technology (ICT) strategy as a basis for the expansion of e-commerce, the introduction of new economic activities and the modernisation of the traditional ones," wrote the members of the OECS Tax Reform and Administration Commission.

The Commissioners note that the efficiency of investment could be improved by directing investment within a rational framework, and a careful selection and rigorous analysis of projects.

"At the same time leadership at the political level should be strengthened and an institutional capacity for the development of ICT firmly established," according to the Commission's Report.

Future growth prospects for the Eastern Caribbean Currency Union (ECCU), wrote the Commissioners, will depend on the further development of the services sector.

"The member states are already exporting a range of business and professional services. These include accountancy, architecture and engineering services, computer and database services, legal services, consultancy, internet-related and web design services, data processing and data repair services and market research. The capabilities of local businessmen and professionals in these fields will need to be identified and strengthened, and firms should be assisted in penetrating external markets," according to the Commissioners.

In tourism, governments already recognise the need for both product and market diversification. The Commissioners note that product development and marketing strategies should be re-oriented to creating and exploiting the growing demand for non-traditional tourist products, such as eco-tourism, heritage tourism, cultural tourism and nautical tourism.

The ECCU countries will also need to access newly emerging markets such as Japan, and the higher income areas in Latin America, and Eastern Europe.

The Commissioners, in their executive summary, also emphasized the importance of fiscal discipline and prudence- embracing tax harmonisation across the Union.

"This will facilitate the modernisation of the tax systems to achieve the revenue, resource, and administrative efficiencies and effectiveness that derive from economies of scale and improve the region's readiness for participation in the international trading arrangements," the Commissioners wrote.

They also note that the role of OECS governments in the economic transformation is central. Governments will be required to take the initiative, provide the initial thrust of innovation, supply some of the start-up finance, and assist with the mobilisation of the different partners required for development projects.

The government must be a provider of information for the development of the entire economy, but especially for the private sector. Information dissemination will be of paramount importance in this knowledge-based society.

The Commission recommends that the following be accorded high priority:

Hotel Aid and Fiscal Incentives: The duty free imports granted under these Acts should remain in place.

The tax holiday should be replaced by the tax credit system as obtains on Dominica.

Statutory Bodies: The tax concessions granted to statutory bodies should be limited to a specific period. The emphasis should be on increasing the efficiency of these organisations, particularly those dealing with electricity, water, ports and the marketing of agricultural products.

Concessions granted under Customs Act: The concessions granted to religious and other bodies under the Customs Act should be carefully circumscribed and should in no case exceed 75 percent of the taxes involved.

Concessions that are granted to civil servants should be limited to a 75 percent reduction in the taxes payable on acquisition of a motorcar every four years. The concession should be restricted to civil servants at an approved grade.

At the same time, there is the urgent need to monitor tax concessions and to harmonise tax concessions among the ECCU countries in order to avoid erosion of the revenue base.

The Commissioners note that the intention is to replace all indirect taxes, except import duty with a Value Added Tax or VAT. Import duty should be phased out following an agreed transition schedule. The VAT will replace a number of nuisance and other taxes such as consumption and travel taxes. However, an efficient revenue system must be supported by improved tax administration.

The Commission highly recommends the establishment of revenue authorities in each jurisdiction, with autonomy to manage revenue functions based on business management principles.

They also recommend the setting up of a Regional Revenue Authority to share vital common services especially in adjudication, planning and research, management, training, and information technology development. 

The Tax Commission strongly recommends that, as part of a regional tax administration, a regional Tax Tribunal should be established as soon as possible to adjudicate in tax matters.

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