Removes service tax adds it to consumption tax and burdens the poor
Towards the end of last week, Montserrat buzzed with disgust and annoyance at the news that a new tariff, according to a Government press release, dated May 21 2012. The release declared: “Measures to simplify and rationalise Import Tax rates will be introduced from 1st June 2012.”
The government move, effectively introduced new taxes on average between 10 and 12.5% and the cost of living skyrocketed. One analyst said: “The new tariff structure has, in some instances, increased the combined duty and consumption tax by as much as 40%, but more generally by between 0.4% to 15%. But that’s not all; by the time the importer’s/trader’s markup is added on to an increase of 10%, the price of the goods/item to the consumer could be raised by as much as 12.5%.”
He explained, “If one such imported item cost $1.00 and the new tariff caused the combined duty and consumption tax to increase from 10% to 20%; so that the price of the item is increased from $1.10 to $1.20. Then the increase in cost to the importer is 10 cents. Moreover, if the importer’s markup is a modest 25%, the additional cost to the consumer will be 12.5 cents; that is 10 cents plus 25% of 10 cents.”
In his Budget address last year, March 24, Premier, still Chief Minister had announced, “…with effect from 1 July 2011, the 5% Service Tax and the Consumption Tax with its multiple rates will be replaced by a General Consumption tax of 15% on all goods. This will be structured so that it can be applied to internal and external services.”
He had done so under the heading: Modernization and Simplification of the Tax Regime, where he said, “Government is committed to making it simpler and easier to do business in Montserrat. Now that we have successfully implemented ASYCUDA World, we will turn our attention to the simplification of the tax rates. We intend to de-mystify the clearance of goods at our Ports of Entry and to ensure that the systems and rates are easier for all to understand; …and to reduce the number of rates used in clearing goods through the Customs.”
Customs and revenue officials explained, as Peter Henderson who then reported to TMR that the idea being worked on at the time was, “to simplify the revenue collection increasing it at the same time while decreasing the tax burden on the community…”
ASYCUDA World had been introduced and in few months revenue officials claimed that although imports had been down the revenue had increased significantly, as a result.
Since the tariff was now introduced, many including several legislators have expressed surprise, sometimes dismay at the extent to which the tariff changes would affect the costs of goods imported to the island. Much of the anger surrounds the fact that many of the basic and commonly used items have seen increases in the overall tariff. Such items as salt, safety pins, liquid detergent, soaps, cereals and a long list of basic and commonly used items have seen increases.
It has been explained that the policy plan was to increase the tariff on luxury items while lowering the tariff on basic items eventually obtaining a “tariff neutral”. That was the original plan.
Opposition leader the Hon. Donaldson Romeo addressed the matter briefly after condemning the tariff changes on Friday, June 1, calling on the Government to correct the new burden and take immediate action to protect the consumers from scrupulous merchants whom he said were reportedly already charging higher prices for some items.
On June 6, in a press release primarily dealing with the Premier’s recommendation to the UN Decolonisation Committee to delist Montserrat, Romeo touched briefly on the Tariff matter following his accusation that the Premier continues to make decisions for the island, “without consulting the Legislative Assembly or the people of Montserrat.”
“It also follows,” he said, “a controversial increase of import taxes, which again went through without adequate consultations with stakeholders. Business persons and consumers alike are concerned over rises in the cost of key medicines such as insulin and antibiotics, in the cost of cement and other building materials, and even of basic foods such as chicken; none of which are reasonably among the “luxuries” that were to be targeted.
Alcoholic beverages saw huge decreases, while exercise books and medicines are up. Morning show host on ZJB has been highlighting some of these facts in the face of the Premier claiming that the reason for increasing such basic item as chicken is to prevent the merchants from gouging.
Merchants are incensed, agreeing that it would be wrong to increase prices before new stock imported. They want instead for government to give direction on how they will treat with the goods they had sitting in the warehouse prior to June 1. In some instances some merchants have made special orders and given quotes to customers based on the old tariff. If the tariff has gone up on those items the price would naturally be higher to the importer and the customer.
The Premier on Wednesday struggled to explain the increase in the chicken tariff. He said the intention was to deter merchants from overcharging. “The intention of the revision of the duty is not one to increase revenue to GoM…We thought it was important to send the message that merchants must invoice properly and stop taking the consumers for a ride because they feel that the consumers have no choice,” he said.
The Premier appeared not to be too familiar with the tariff he has introduced as he equated aerated beverages (sodas) as attracting a 70% consumption tax the same as alcoholic beverages. That was incorrect as aerated beverages did suffer an increase of increase of 4.2%, while most common alcoholic beverages, rum, gin, brandy, whisky, vodka etc. benefited from a decrease up to 5%.
The tariff contains 6,280 items of which 3,929 show reductions of up 33.1% to 0.05% or 0%, the last one meaning there was no change. In many instances, the duty was high and remained there but the consumption tax removed or reduced while absorbing the service tax, which was 5% in every case.
Approximately 2,330 items had which showed zero (0) consumption tax, now carries a consumption tax of 15% (10% plus the service tax of 5%).
The remaining items out of the 6,280 items show increases in the consumption tax absorbing again the 5% service tax. In the tariff, the following is an example of an item that carried 5% consumption tax. It would see an increase of say 5% with the service tax added to show a total consumption tax of 15%.
Most of the items have been standardised with a consumption tax of 15%. Others show the tax as high as 70%, such as water, stout and tobacco, while others stand at 40%, such as aerated water and beverages although they only show a small increase of less than 5%. Meanwhile, some alcoholic beverages have shown sizeable decreases in the tariff.
Some merchants have expressed their dissatisfaction at being told that an increase in the tariff rates would enhance their income, noted that the increased items would only encourage consumers to purchase less, while continuing to purchase the items they already do where the prices have gone down, since these are not high volume items anyway.
The Montserrat Chamber of and Industry and Commerce issued a statement on the tariff matter, along with an expression of their annoyance and disappointment in a new plan by government to pay their creditors by sending their payments to a bank account in their favour.
The Premier only three weeks ago, indicated to the people of Montserrat in the Legislative Assembly, “we are not here to increase taxes, because we believe the tax burden is already sufficiently heavy.” Upon his return to the island this week from Ecuador where he requested Montserrat to be delisted by the UN Deconolisation Committee, promised that the concerns of people would be looked at.
The observation is made by many that when the Premier made his announcement in the budget speech of March 24, 2011 the intention was always to raise taxes under the guise of simplifying the tax regime.
Consumers and merchants alike, note than there were no complaints about the three tier of computation, but rather the classifications were unnecessarily too many, and the new tariff did not change anything. The expression is that it was dishonest to pretend to abolish service tax while increasing all consumption tax by the service tax rate of 5% and more in some instances.
Referencing the government press release which said, “In the main, items used by the less well off in society will attract a lower banding whilst luxury items such as some electronic goods will attract a higher banding,” is in fact not the reality. “More dishonesty and deception,” they say.
“The tariff release stated: “Careful consideration has been given by the relevant Departments to the various policy objectives of the Government of Montserrat especially the social impact of these changes and adjustments made accordingly.”
“Who were the people the Government consulted to make the new tariff?” MCCI Chamber members asked.
The Premier boasted, MCAP Government, “…in the two and a half years we have not raised taxes, we have raised tax revenue but we have not raised tax rates as a matter of fact…”
Today, the Premier contradicting the general belief that the tariff review was no more than a deception and a desire to raise additional revenue, says that was not the intention but government will re-look at the concerns raised by the people.
