For most citizens with a vested interest in the Turks and Caicos Islands, TCIG’s recent decision to implement VAT in these Islands is an experiment that we can ill afford.

Both the VAT Green Paper and consultations with the recently formed VAT implementation team have made it clear that the practical implementation of the proposed VAT system has not been fully researched, and the VAT impact on the TCI economy has not been fully quantified.

Thethree main reports that form the basis of TCIG’s new love affair with VAT are the CARTAC Report of '11, the Dos Santos EU Report of '10/'11and the Roe Report of ’10 (it is curious that Roe consulted with over 60 prominent citizens from both the public and private sectors and still managed to produce a decidedly pro-VAT report). The EUReport has yet to be released to the public. Base on an earlier CARTAC study, an elected TCI Government looked atVAT as an option in '05 but decided against it.

Even though VAT sounds good in principle (VAT proponents say that by broadening the TCI tax base, our Treasury should be less susceptible to future economic downturns), the following concerns cannot be ignored:

• An existingtax system is in place that currently produces a surplus. WhenVAT was proposed in the ’10 Roe Report, TCIG was running a huge deficit. The TCI economy has improved since then.

• The goal of the tax reform proposal is to establish a “more efficient and less volatile tax system”. No evidence has been presented for public discussion that confirms that the new VAT system will be more efficient or less volatile. A lot of evidence exists that shows that VAT is much less efficient. The TCI VAT team cannot tell us how much the new system will raise or how much it will cost. There are too many unanswered questions with a system that is only a few short months away from implementation.

• The recommendation of both CARTACreports was for a two year period to introduce VAT. The current proposal is for it to be in place a mere eight months after becoming law on July 13th. TCIG will tell you they announced VAT in the Budget of '11, but the truth isthey only recently started to actively engage the general public.

• The current reality in dealing with TCIG is that routine administrative tasks take months to complete. A work permit application can take six months to process. NHIP clearance takes six weeks and two doctors to examine a medical form. Simple repatriation deposits for work permit holders take months to refund – if ever. Given this daily evidence, the likelihood of a complicated, brand-new, untested and unproven VAT system being successful after just eight months of enacting it is minimal.

• Even though TCIG hates to hear the VAT/NHIP analogy, we are relying on the same pool of talent to administer the new systems. Even though NHIP was forced upon the public with much fanfare, administration of the much touted NHIP, by all accounts, has been a failure. We still cannot get clear-cut answers from a regime that has been operating for over two years. This is the pattern we can expect from VAT admin.

• To our knowledge, no study or analysis has been done on the effect of making the TCI an even more expensive destination for our tourists. Will the assured increase in the cost of a vacation be the tipping point for the majority of visitors who already consider this an expensive destination?

• Despite the recent assurances from the new PS Finance to the contrary, VAT will represent an increased tax burden to the majority of TCI citizens and will negatively affect our economy. This is supported by a wealth of research indicating that higher taxation restrains economic growth. In part, this is because taxes discourage economic activity, but it is also because higher tax burdens divert resources to the public sector where they are used less efficiently.

• It is expected that Professional Services that can be offered via the internet will be outsourced to avoid the VAT on services that would otherwise be generated here. This will lead to more capital flight and further erosion of the tax base.

• None of the regional territories that are most economically and structurally similar to the TCI have adopted a VAT. Cayman went so far in the Miller Commission report of Feb 2010 (the same time of our Roe Report that TCIG hangs it’s VAT hat on) to state that VAT “would harm the Cayman economy and its people…a VAT would cut into the amount the average tourist spends. That money would be lost to Tourism businesses”. The Caymanians rightly concluded that VAT would produce similar revenues to their systems already in place…systems virtually identical to the TCI. But the Miller Report saw huge costs in VAT implementation and administration, and concluded by stating that “initiating a VAT typically requires two years of costly change, including time to obtain the support of the business people and the population at large. Great difficulties have been encountered by smaller countries, and some have withdrawn their VAT systems…It is a disruptive exercise for any country to undertake”

• Our CFO, Hugh McGarel Groves, stated in a Dec ’11 interview with the Caribbean Journal that “we need to be careful that we keep our tax base here (in the TCI) competitive and don’t get out of line with our competitors” None of our closest competitors, the Bahamas, Bermuda, BVI or the Caymans, impose a VAT on their citizens or businesses.

This petition represents a small sampling of the concerns of a large cross-section of TCI citizens. Wholesale tinkering with our economy should not be done “by writ”, by a single individual, without serious consultations with all stakeholders. We are asking the FCO to delay the scheduled July 13th passing of VAT until concrete answers can be given to even the most basic questions that have been presented at the public meetings.

In seeking the stated goal of the interim administration to simplify TCI tax regimes and broaden our tax base, the administration would be wise to follow Sir Robin Auld’s advice in the ’09 Auld Report …“Keep it simple… keep in mind the smallness of the territory. While allowing for the size of an economy disproportionally large for the population, the territory should not be burdened with unnecessary governmental or administrative trappings more appropriate for a much larger nation”

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