Prime Minister Dr. Timothy Harris Wednesday presented an EC$749.3 million (One EC dollar=US$0.37 cents) budget to Parliament saying the fiscal measures are intended to help the twin island Federation “more rigorously address weaknesses in our systems and ensure that we would move closer to achieving the internationally established Sustainable Development Goals (SDGs).”
Harris told legislators that the government expects to generate EC$126.9 million in taxes on income during the 2019 fiscal year, with taxes on property expected to reach EC$16.6 million.
He said that his administration is expecting taxes on domestic goods and consumption would be in the vicinity of EC$108.7 million while taxes on international trade and transactions, the largest subcategory of tax revenue, would generate EC$203 million.
Harris told legislators that the non-tax revenue, which is expected to be driven by inflows from the Citizenship by Investment (CBI) programme, is projected to be EC$294.1 million for 2019.
Additionally, a total of EC$24.9 million is estimated for capital grants and EC$9.9 million for budgetary grants.
Harris, who is also Finance Minister, said that the recurrent expenditure is estimated at EC$591.8 million a moderate increase of 14.5 per cent over the 2018 fiscal package.
In his presentation, which he dubbed ““Sustaining Growth and Prosperity” Prime Minister Harris said that he had made reference to the SDGs “because they present a good backdrop for framing more effective policies that would help our economy to grow and our people to thrive”.
He said the budget is also anchored in the objective to register notable progress in respect of nine of the 17 Goals, noting that with regards to health and education “we would continue to develop and implement policies that would help us to build momentum in the development of these two critical sectors”.
Harris said his administration would continue to work with the private sector and other stakeholders so as to ensure “these efforts translate into actions that can make St. Kitts and Nevis an example of what can be accomplished when a government and its economic and social partners work together to move beyond dialogue to action”.
He said that the fiscal measures and strategic interventions planned for implementation in 2019 would reflect this fact, noting for instance “we are aware that since 1982, the law has limited the deduction of compensation paid to any one individual or family members.
“The intent of this provision in the law is to minimise occurrences of tax avoidance arising from the manipulation of compensation that would result in a company having little to no taxable profits. In 2012, the Income Tax Act was amended to increase the limit on compensation paid to EC$75,000, up from EC$60,000 in prior years. A further amendment was made to the Income Tax Act in 2016 increasing the threshold to EC$90,000.”
Harris said that the issue has been further discussed with the private sector and appreciate the need for companies to be able to attract and retain talented qualified managers and other top quality professionals in their organizations.
He said as a result, the government will seek to amend the Income Tax Act to increase the allowance to EC$120,000 per annum.
“In three years we would have responded positively to the Chamber and have moved the allowable compensation threshold by more than 50 per cent. The government is committed to undertaking a comprehensive review of the tax regime,” Harris said, adding that his administration would rely on development partners to get it right.
“We are actively considering the dichotomy in the licensing fees paid between wholesale and retail liquor establishments in the rural areas in an effort to establish more equity for our small business operators,” he said, adding that another issue discussed was the low compliance of filing tax returns, particularly within some tax categories.
Harris said that the Ministry of Finance has initiated an assessment of this matter with a view towards enhancing administrative procedures to improve overall compliance rates.
“This is important not only in terms of the closing of existing gaps in revenue collection but also in terms of our country meeting the standards set for exchange of information for tax purposes. The Ministry is therefore exploring options for improving voluntary compliance through the introduction of a Tax Clearance Certificate system.
“Basically, a Tax Clearance Certificate would constitute an official confirmation from the Inland Revenue Department that the tax affairs of a particular entity are in order. It is known that numerous countries around the world, especially developing countries, have used the Tax Clearance Certificate process as a fiscal policy tool to improve collections without increasing taxes.”
Harris said that in addition to the international tax matters his Team Unity government has taken the matter of the European Union blacklisting very seriously and a team of professionals has been working tirelessly to study the specific charges put forward by the EU Code of Conduct Group.
“Our team’s efforts have been augmented with international technical expertise and we have made some progress in trying to find a solution that would help to preserve our country’s reputation as a responsible member of the global financial system.
“A number of options has been explored and consultations have been held with key stakeholders in the Financial Services Sector. We are all aware that the government has given the commitment that St. Kitts and Nevis would make the necessary decisions to allow the country to achieve compliance with the standard set by the EU.
“We also know that the country was given a very short period of time to conform with the demands of the EU. We would therefore return to this Honourable House later this month to make proposals to amend the relevant sections of the Companies Act,’ Harris said, adding that he was hoping all legislators would support the initiative.
On the issue of public sector debt, Harris said that the Land for Debt swap arrangement has remained a sore point for both the government and citizens, particularly those who have lost the ease of access to land based on the current arrangement..
“It is no secret that for some time now this arrangement has been a very vexing sore point. We have engaged our technical team and consulted extensively with our regional and international partners on this matter.”
He said a comprehensive review of the Land for Debt swap revealed the complexities of the arrangement and the negative implications of a full reversal of this inheritance from the past.
“We have therefore determined that we would redeem the land required for housing, farming, commercial and industrial expansion in an orderly and phased manner. We intend to roll out a plan for the redemption of lands committed under the Land for Debt swap,” he said, adding that the government will purchase approximately 500 acres in the shortest possible time starting this year.
“We believe that we are duty bound to preserve the patrimony of our people,” he said, adding that “persons were forced to accept land in the far rural areas because no lands were available in their communities. The Land for Debt swap meant that they were excluded from the benefit of land ownership.
Harris said the government would continue to work with the International Monetary Fund (IMF) to avoid the instability and hardships that can result from extremely high and unsustainable public sector debt.
“We are managing well and we are committed to ensuring that our history of unsustainable debt and IMF bailout is never to be repeated. We are stressing fiscal discipline and prudent debt management because we believe it is right and necessary to build the fiscal resilience of the government and to build momentum in achieving sustainable growth and development over the long term.”
