Maroc - NEWSDAY.CO.TT - A la Une - 16/Oct 07:19

Rethinking retail tax

The proposed replacement of the Value Added Tax (VAT) system with a sales tax and the removal of VAT from "basic" food items were two notable changes for the business community in the 2025/2026 budget presentation. ​During his budget speech on October 13, Finance Minister Davendranath Tancoo said the VAT system, which has been in effect since 1989, has become "increasingly onerous to administer." With regular filing required by businesses and the processing burden placed on the Inland Revenue Division, Tancoo said the system had led to a buildup of refund arrears, undermining business confidence and fiscal management. This, he said, prompted the government to consider replacing the VAT system with a "simpler, easier to administer" sales tax system. The VAT rate is currently at 12.5 per cent. ​Speaking to Business Day at the TT Manufacturers’ Association’s post-budget discussion on October 14, Tancoo said a change to sales tax would allow the Inland Revenue Division to generate its revenue more clearly and efficiently. ​"Previously, there would have been issues where people could have avoided the tax, increased it or chose not to pay it. But under the sales tax regime, as exists in the US and Canada, that opportunity to bypass the taxation system would be eliminated. We will treat with people who are trying to evade taxation." ​He said the BIR would be better resourced and equipped to ensure compliance. ​"We have set up a committee to be looking at how best and soon it can be implemented and what format it can take because it can take multiple forms." The cost of a broken system ​Tancoo's sentiments about the VAT system were echoed by president of the TT Coalition of Services Industries (TTCSI), Dianne Joseph, who said although both VAT and sales tax are consumption-based, there’s a significant difference between the two. ​"A sales tax is a single-stage tax applied only at the final point of sale to the consumer, collected by the retailer. "In contrast, VAT is a multi-stage tax applied at every step of the supply chain, from the producer to the retailer." Joseph said aside from the backlog of refunds, the current VAT system faces issues with tax compliance, administration and the "regressive" effect of the tax on citizens. Inefficient processes, including a sometimes inaccurate taxpayer database and slow processing of transactions were two key issues she identified. Joseph also noted an inadequate enforcement regarding tax evasion and non-compliance, presenting persistent issues. "This is exacerbated by weaknesses in enforcement and a cash-dependent society. [caption id="attachment_1184923" align="alignnone" width="1024"] Lydia Baptiste shows interest in a bottle of mauby at Mr One Stop Mart, Tumpuna Road North, Arima on October 15. - Photo by Angelo Marcelle[/caption] "The plan to replace VAT with a sales tax may be a very good idea. It also puts TT a few steps closer to other developed countries and removes the burden of filing of VAT returns, penalties and administrative burdens and places a one-time reporting, which may be on an annual basis. "It may also ease the burden placed upon small businesses and the stress related to long wait periods for VAT refunds." Tancoo said the government will clear the refund backlog as it undergoes reviews, as the translation will require legal amendments, administrative revision and close consultation with stakeholders. "We will also ensure that any transition to sales tax is revenue-neutral and socially balanced, with appropriate protections for low-income households," he said. San Fernando Chamber of Commerce president Kiran Singh also recognised the burdens of the VAT system expressed by those in the small and micro enterprise sector. ​"The removal of VAT with the replacement of a sales tax may result in a win-win situation," Singh told Business Day on October 13. ​"The government would get the revenue directly. This would result in lower accounting costs to businesses. "Cashflow, which is the lifeblood of any business, would be less compromised as they would not have to wait on VAT refunds. "We look forward to receiving outstanding VAT refunds in the near future." ​Singh suggested that the sales tax percentage be in line with other tax regimes where the system exists. The change was also welcomed by Fyzabad Chamber of Commerce president Angie Jairam. "We are all for systems for the ease of doing business and hope the government will have consultations with stakeholders to ensure the process does not increase cost in the operational processes since the current VAT system is well-integrated," Jairam said. The American Chamber of Commerce of TT (Amcham TT) also endorsed potential alternatives to "what appears to be a broken VAT system which has negatively affected business cash flows." ​Aside from industry benefits, Tancoo said the sales tax could also benefit TT holistically. He gave an example of his experience with the sales tax system in Canada. ​"When they take the tax at the point of sale and they will ask, because the entire system is digitised which is what we are moving towards, if you want to donate a dollar of it to the children’s life fund…so this can be used to facilitate some of the initiatives we already have…we can use it to allow for more human support for social initiatives." During the post-budget media conference on October 13, Prime Minister Kamla Persad-Bissessar also noted the need for the change. "We are working out a model for the sales tax…there a models everywhere, we took the route of the VAT rather than the sales tax but obviously that is not working…it works even against the small businesses so we need to change it," she said. VAT-free food commodities While the sales tax introduction seems to promise a long-term solution to a dynamic issue, Tancoo also announced a short-term solution to national food affordability that will take effect from October 17. [caption id="attachment_1184925" align="alignnone" width="1024"] Barry Telesford fills his shopping cart at a grocery store in Port of Spain. - FILE PHOTO/ Faith Ayoung[/caption] Following amendments to Schedule Two of the Value Added Tax Act Chapter 75:06 in 2016, which specified a zero-vat rating on items like fresh and canned produce, unprocessed food and spices, Tancoo announced VAT exemption amendments for "basic" food items. This will be implemented on products like pumpkin, watermelon, cucumbers, lettuce, tomatoes, salt, mauby and coconut water, among others. [caption id="attachment_1184926" align="alignnone" width="947"] Bottles of coconut water for sale in a grocery in Arima.Coconut water is now VAT-exempted. - Photo by Angelo Marcelle[/caption] ​Responding to this, the Supermarket Association president Biondi Bachew said, "The association has written to the minister to get advance notice of the zero-rated list." ​He said this is to ensure that supermarkets and those in the supply chain would be able to implement the price changes effectively. ​"This will allow the sector to make the necessary operational adjustments in a structured and compliant manner to ensure that the intended savings are efficiently and transparently passed on to consumers." Speaking on the possibility of the sales tax also being applied to farmers, Agriculture Society president Darryl Rampersad ​said, "(VAT) Tax is placed on mostly registered businesses and as farmers we are not registered as businesses we’re registered as farmers." [caption id="attachment_1184927" align="alignnone" width="1024"] Aranguez farmer Chanardath Bir attends to his lettuce field. -  File photo[/caption] ​He said this gap in registration impacts farmers’ abilities to access incentive programmes. "For this process to go through, we first need to conduct an agricultural census to know how many productive farmers we have in the country. "So this is not something we are looking to welcome at this point…what we do welcome is the decrease in the cost of feed. That will have a direct impact on dairy and poultry products and that is commendable." ​He said if policy changes to have farmers included in the tax, it would raise the cost of food both in the production and final sales phases.   The post Rethinking retail tax appeared first on Trinidad and Tobago Newsday.