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A Modern Tax - the Gateway to Grenada’s Tax Reform
The Government of Grenada has embarked
on an Economic Reform Programme aimed at
restoring growth, achieving fiscal balance,
poverty alleviation and other critical issues
of social development. This programme was
initiated in the aftermath of Hurricane Ivan
and has received the support of the Regional
and International Communities.
The Value Added Tax (VAT) is a critical component
of the economic reform programme.
The implementation of VAT will assist in
restructuring the tax system to make it more
responsive to economic development, and be
simple to administer. More importantly, VAT
will be used to create a new culture of voluntary
compliance.
VAT is not an additional tax as it will replace
the General Consumption Tax (GCT), Airline
Ticket Tax and the Motor Vehicle Purchase
Tax. Under the VAT, the tax base will be
broader (more goods and services will be
included) thus allowing VAT to be introduced
at a lower rate compared to the standard
General Consumption Tax.
VAT has now become a common feature within
CARICOM. Recently, it was introduced in
Dominica, Belize, and Guyana and very soon,
St. Vincent and the Grenadines, and Antigua
and Barbuda will join the list of over 130
countries where VAT is in operation.
It is our intention to use VAT as an instrument
to attract investment, provide incentives
to exporters and in general make our
country internationally competitive. It is in
this context that the rate proposed for VAT is
in harmony with the rest of our Caribbean
countries.
In keeping with this Government’s commitment
to consult with stakeholders on major
policy issues, we are pleased to present this
White Paper on VAT for public dissemination
and discussion. This paper outlines Government’s
policies and proposals for a successful
implementation and efficient operation of
VAT in Grenada.
On behalf of the Government of Grenada, I
take this opportunity to invite comments and
feedback on this White Paper so that we can
make the necessary changes to the legislation
before it is presented to Parliament.
Hon. Anthony Boatswain
Minister of Finance
INTRODUCTION
The Government of Grenada has decided to
introduce VAT as part of an overall programme
of fiscal and tax reform. The VAT
will be used to initiate a series of changes in
the organization and operation of the Inland
Revenue Department aimed at improving tax
compliance, taxpayer relations, and overall
administrative efficiency.
The VAT will replace the General Consumption
Tax (GCT), the Airline Ticket Tax and
Motor Vehicle Purchase Tax. VAT, a tax on
consumption, has the characteristic of limited
exemptions and a broad base. With a uniform
VAT regime, the opportunity is presented
to have an equitable and simple tax that
will be easy to administer, with a rate much
lower than the average rate of GCT.
The Government of Grenada is confident
that VAT will provide some measure of fiscal
stability as VAT has proven to be the best
alternative measure of indirect taxation
capable of generating reliable and consistent
revenues in open developing economies.
CURRENT TAX SYSTEM
The current tax system in Grenada is comprised
of direct and indirect taxes. The
Inland Revenue (IRD) and Customs Departments
are responsible for collecting these
taxes.
Direct taxes are imposed on income and
property. Such taxes are personal income
tax, corporate income tax, and property tax.
Indirect taxes, such as import duty and general
consumption tax,
are levied on international trade and the
consumption of goods and services.
Table 1 below, shows the contribution of direct and indirect taxes to total current revenue for the period 2000 – 2005 
It is these kinds of characteristics and features
of indirect taxes that contribute to inefficiencies
and inequities within the tax system
and are partly responsible for the current
low tax compliance rate, and the high
cost of conducting business in some sectors.
The current system does not allow for credit
or refund of taxes paid on inputs (i.e., purchases
and expenses) to be used to produce
goods for export and as a result these goods
may become less competitive since they contain
a significant amount of domestic taxes.
OVERVIEW OF VAT
VAT is a tax on CONSUMPTION – it is
charged on the value of imports and on the
value added (mark-up) on goods and services
supplied by one business to another or to
final consumers. It is not a tax on output
neither is it a tax on businesses.
VAT was first introduced in France in 1948
and is currently practiced in 136 countries
worldwide, including CARICOM countries
such as Jamaica, Barbados and Trinidad and
Tobago. Recently Dominica and Belize have
also introduced VAT. St. Vincent, Antigua
and Barbuda and Grenada are on schedule to
introduce VAT in 2007 whilst the remaining
CARICOM countries e.g. St. Kitts and Nevis
are considering introducing the tax.
In 1986 VAT was introduced
in Grenada but was
short-lived due to a number
of structural problems
associated with implementation.
However, a firm
commitment is given by
Government to address
those deficiencies and to
introduce the VAT once
again on October 1, 2007.
VAT is designed to ensure
that all forms of consumer
spending, with the exception
of expenditure on
exempt supplies, are taxed
evenly and fairly.
When implemented efficiently, it will ensure
that the full burden of the tax applies only on
the final selling price.
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