The Government yesterday announced new tax-reduction measures in the House of Representatives expected to cost the Administration $18 billion in 2020/21.
Minister of Finance and the Public Service Dr Nigel Clarke, who made the announcement as he opened the 2020/21 Budget Debate, said the budget is strategically focused on moving forward, in the right direction, consistently, and where the fruits of collective effort are shared.
He said the measures support the 2019-2020 tax reform that saw reduction in tax rates, and the elimination of some tax types considered distortionary.
The $18-billion in tax reduction is a $4-billion improvement on the $14 billion in tax cuts the Government implemented in the last financial year.
Yesterday, Dr Clarke told the House, “The proposed measures support the thrust to continue reforming the tax system towards equity, efficiency, and simplicity.”
Among the three tax measures addressed were the General Consumption Tax (GCT), asset tax for businesses, and a new income tax credit for regulated and unregulated companies with annual sales less than or equal to $500 million.
A reduction in the GCT from 16.5 per cent to 15 per cent came as a huge surprise as it follows a call from Opposition Leader Dr Peter Phillips last year for a two per cent reduction. However, last December Dr Phillips’ junior in the Opposition People’s National Party (PNP) shadow cabinet, Senator Andre Haughton, had suggested in his contribution to the annual State of the Nation debate in the Senate that it was merely a “bait” from the opposition leader which could cost the Government $26 billion.
Yesterday, Dr Clarke told the House of Representatives that the potential cost of the reduction was approximately $14 billion, but added that, despite the potential revenue loss, it is expected that the tax would continue to perform.
He suggested that the slash in the GCT would help reduce the incentive for taxpayers to be non-compliant, as well as incentivise all sectors through lower upfront cost and increased cash flow, which would serve to encourage growth in the economy.
He said the new rate would come into effect on April 1, and noted that the last adjustment to the standard rate of the tax was made in 2012 — from 17.5 per cent to 16.5 per cent, where it will remain until the April deadline.
Dr Clarke also announced that the Government will reduce the assets tax rate from 0.250 per cent to 0.125 per cent.
He recalled that the assets tax was abolished for non-financial institutions effective 2019, as an initial step in reforming the tax type. This resulted in the lowering of the costs to the micro and small business sectors while better aligning taxation with profitability.
He said the rate reduction to 0.125 per cent was another step in the reform of the asset tax regime. The potential revenue reduction from the measure is estimated at $3.020 billion and the effective year of assessment is 2021.
Regarding the third measure, Dr Clarke explained that in 2016, under the phased increase in the general personal income tax threshold to $1.5 million, which was finalised in 2018, self-employed individuals were able to benefit from the threshold unlike registered companies.
“It is proposed to provide an income tax credit of $375,000 for both regulated and unregulated companies, with revenue/sales equal to or less than $500 million,” he explained.
He said the credit is in addition to the employment tax credit available to unregulated companies and must be utilised within the year given. Neither can it be carried forward or result in a refund.
The measure is expected to cost the Government approximately $1 billion, and will become effective for the year of assessment 2020.