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Government reduces income tax for the second year

Government reduces income tax for the second year


Fiscal measures intended to “bring a measure of relief to workers and businesses and to improve the country’s competitiveness” have been announced by Prime Minister and Minister of Finance Dr Ralph Gonsalves as part of his budget address on Tuesday, December 11th.{{more}}

Thus, Vincentians have received a reduction in income tax for the second consecutive year running. The threshold has been raised and now stands at EC$17,000, up from EC$15,000, and the top marginal rate will be reduced from 37.5 per cent to 35 per cent. Additionally, the standard rate of company tax has been reduced from 37.5 per cent to 35 per cent Dr Gonsalves announced.

“The estimated cost of this measure is approximately $9.5 million per annum,” Dr Gonsalves said, as he presented his budget under the theme “Meeting the global and domestic challenges: The Quest to build a Modern, many-sided competitive, Post Colonial economy, which is national and regional.”

On the other hand, Dr Gonsalves said that Government was forced to address the problem of skyrocketing oil prices. He noted that it cost the government $15 million per year to subsidize the price of petroleum products here. These subsidies, he said, are “clearly neither sustainable nor advisable.”

Therefore, in 2008, the price of gasoline is up to $12.60 per gallon from $11.50, diesel $10.35 from $8.75, and kerosene $10.60 from its current price of $8.34.

In addition to the cost of fuel, Vincentians will also pay an estimated 25 per cent more on vehicle licenses, and related maters.

Dr Gonsalves, however, stated that these new charges will not affect the providers of public transportation.

“The charges for hired cars and passenger buses will not be increased,” he said.

Meanwhile, since the May 1st, 2007, introduction of the Value Added Tax (VAT), there have been calls by the opposition for the expansion of the zero rated list, and for several goods and services to be exempt from VAT.

Dr Gonsalves announced that in 2008, among other things, several food items, including whole chicken legs, table margarine, cooking margarine, yeast, cooking oil, baking powder and salt have been zero-rated. Also zero-rated are baby diapers, toilet tissue, undergarments, energy saving bulbs and sanitary napkins.

Added on the exempt list are the following food items: onions, lentil peas, garlic, and pigeon peas. The sale of real property and yachting services provided by persons licensed under the Yacht License Act has also been exempt from VAT.

All told, Dr Gonsalves said that he expects these and other adjustments to the VAT to cost the government an estimated $6 million per annum.

“The link between those products and certain life-style diseases and conditions is well established, and there is no doubt that excessive consumption of alcohol and smoking has contributed to increases in our health care costs,” Dr Gonsalves said as he announced a hike in the excise tax on alcoholic drinks and cigarettes, along with an increase in liquor license fees.

These measures he said are part of his Government’s “wellness revolution”, which is aimed at getting Vincentians to practice healthier lifestyles, as part of the battle against deadly non-communicable diseases.

In this regard, a five percent excise tax has also been imposed on carbonated drinks.

Dr Gonsalves also sought to address any concern about the solvency of the National Insurance Scheme (NIS), by raising the minimum contribution by employers and employees to the scheme.

He said that the provision of social security is one of the central planks in the evolving Wellness Revolution.

“The last actuarial valuation of the NIS showed that the NIS was actuarially and financially sound and had enough reserves as at the end of 2004 to pay expenses for the next 12 years. The report, however, pointed out that cost was projected to increase rapidly and to surpass current contributions by the year 2012,” he said.

The new structure will see employers contributing 4.5 of their employees’ monthly salary, up one percent from what exists now, while the employees’ contribution also goes up by one percent to 3.5 percent.

“These charges still make the contributions among the very lowest in the region for the benefits provided. This measure is decidedly pro-worker, since it strengthens the employees’ retirement and other benefits,” Dr Gonsalves said.