Saint Lucia cannot move to reduce Value Added Tax (VAT) on food or any other commodities at this time, due to the country’s current financial situation.
This is the view expressed by economist, Richard Peterkin, when asked to comment on whether Saint Lucia could make a similar move to that of the new Saint Kitts and Nevis (SKN) government.
“St Lucia cannot do that at the present moment. St Lucia has a high list of exempt and zero-rated items and so they have to be very careful if they continue to add items to that list,” Peterkin told St. Lucia News Online (SNO) in an exclusive interview.
Added to that, Peterkin said the country still has a high deficit to Gross Domestic Product (GDP) which is in excess of five percent, which the government is trying to bring down to at least three percent.
He suggested that the only way Saint Lucia would be able to do this, is to make sure that they have revenues; they don’t have a deficit in their current account or deficit to an extent cost.
Peterkin said that the country can’t borrow a lot more money for capital programmes too, which will ensure that the fiscal situation is stable.
“And it seem to me even though there was significant growth at least 10 per cent growth in VAT in 2014, the overall position still needs some work before we can start to look at the exemption or reduction,” he stated.
The economist told SNO that the move taken by SKN was a campaign promise and it is not unusual that the new government would move to implement what they have promised the people.
However, he said it is more than just a campaign promise. Rather, the current government must have had a look at the financial situation of the country, before they made such a decision to remove VAT.
“These days the fiscal implications of amending your VAT by rate or by removing items or putting items on a zero-rated list could be quite significant,” he explained.
He said the problem governments have is that they are not really in a position that they can simply give away, simply reduce revenue that they don’t need, in order to cover expenditure.
While Peterkin views this as a good thing from a political party point of view, he said SKN also has the highest rate on VAT in the OECS at 17 per cent, while Saint Lucia is at 15 percent.
“So they start in a position perhaps to have more revenue in a kind of a local context than some of the others might have, which might put them in a position to take certain items off the Vatable list, without having any significant implications to the overall fiscal condition,” he explained.
Additionally, in 2014 SKN had the highest growth of 4.5 percent and probably the lowest deficit per capita in the OECS region, as a result of a number of things.
Peterkin opined that the restructuring to country’s debt and also the global resident investment may have given the government a fair amount of additional revenue, which had some impacting growth.
“When your country is in a position of showing good growth of over three percent and low deficits, then you are in a position to make that kind of change without any major implications,” he added.
The economist argued that Saint Lucia’s fiscal condition is not as strong as SKN and as such, the country is not in a position to remove nor reduce VAT on certain items at this time.
“I believe that it is something that the government is still looking and trying to do. And people should try and encourage certain reductions too with hope that this could also happen here.”
The Lucian Peoples Movement (LPM) and the Civil Service Association (CSA) have called on government to follow in the footsteps of the SKN government, to reduce VAT on food.