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Turks And Caicos Aim For VAT By 2013

The Turks and Caicos Island passed its 2011/2012 budget last week, which included a major adjustment to the tax system designed to pave the way for the implementation of a value-added tax by 2013.

The island is in the middle of a fiscal crisis, with assistance from the UK supporting the government budgets. The economy doubled in size between 2002 and 2008, but public sector spending increased threefold, with a shrinking tax base due to government exemptions and concessions. Tax revenues fell tp 16% of GDP in 2010 from 24% in 2006.

The proposed VAT is expected to make up some of this difference. When implemented it is expected to run at a headline rate of 10%, though it will still take 2-3 years to be put in place. During the transition, the government is introducing a 4% customs processing fee, a limited carbon tax that is expected to raise USD 3.4 million in 2012/2013, a water sales tax expected to raise USD 1.4 million by 2012/2013, a 10% bank tax on non-interest baring services, and a 2.5% insurance tax. The government will also make a series of changes to the system of work permit fees, which should both simplify the process and raise revenues. Many of these measures will be cancelled once the VAT is fully in place, as will already existing telecommunication, accommodation and vehicle hire taxes..

There will be no introduction of a property tax or an income tax according to the government.