We are pleased to give an overview of the fiscal measures announced in the 2017 Budget Statement presented by the Minister of Finance, the Honourable Colm Imbert, on September 30, 2016. The theme of the 2017 Budget is “Shaping a Brighter Future: A Blueprint for Transformation and Growth”.
The reduction in tax revenue as a result of continued depressed oil and gas prices, together with the introduction of the new tax regime on capital expenditure on exploration, will require “across the board” adjustments. Companies and individuals may have to make difficult decisions and take action to deal with the reality of the current situation for the country to successfully navigate the road ahead.
Interestingly, the 2017 forecast indicates that most of the country’s revenue will come from the non-oil sector. Oil revenue is projected at $2.575 billion and non-oil revenue at $44.866 billion.
In an attempt to stimulate further economic activity, focus has been placed on Public Sector Investment Programmes, savings incentive to the populace, financing to facilitate housing acquisition for low to middle income individuals, and taxes on higher income and profit earners and luxury items.
One of the underlying fundamental themes of the budget is trying to widen the tax net and to institutionalise the Revenue Authority to improve compliance and revenue collection.
In spite of the challenges ahead, we need to take action to shape this country for the brighter future and we will continue to look to the positives, which we will all experience from growing the economy.
I thank our hard working team for their continued commitment to client service.
We hope our brief is useful to you and we look forward to hearing from you with any questions you may have for your business.
One year ago, the Honourable Minister Colm Imbert, tabled his first National Budget as Minister of Finance. Painting a bleak picture of the economy on the backdrop of falling oil prices and energy output, the budget forecasts a deficit for fiscal year 2016 of $5.5bn. In tabling the 2017 budget, the Minister informed that the actual deficit for 2016 is “slightly higher” than the original, now estimated to be $7bn. The budget tabled for 2017 forecasts another year of deficits in the region of $6.0bn.
The table below shows a comparison of the budgets for 2017 and 2016. A column has been inserted for the 2016 mid-year review. The budget originally presented for fiscal year 2016 was deemed a provisional budget.
In the revised projections for 2016 mid-year, assumptions of oil and gas prices were adjusted downwards from US$45 to US$35 per barrel and US$2.75 to $2US per mmBtu, respectively. For 2017, oil and gas assumptions are US$48 per barrel and US$2.25 per mmBtu, respectively. Our research has found these numbers to be consistent with most published oil and gas price predictions.
An examination of the adjustments shows what many economic commentators, have realised that we will have to remove our disproportionate reliance on oil and gas and adjust to this “new normal” which has created substantial uncertainties in the forecasting process. As a result the budget for 2016 was tabled in October last year, a mid-year revision was done and a final expectation was articulated today, all with different numbers.
Due to the anticipated shortfalls in revenue, expenditures were adjusted downwards. Whilst the impact on the deficit may seem marginal ($7bn compared to $5.5bn), the reduction in government spending has broader implications. For both fiscal 2016 and 2017, Government has reduced expenditures over the 2015 period. These reductions send signals to the economy and there is the economic phenomenon of the fiscal multiplier effect.
The compositional changes in Government revenue, with respect to receipts from oil and gas, signalled an end to oil dependency. Given that the forecasts for 2017 continues with these reduced proportions, there is definitely a feeling of a permanent strategic change to revenue management. As observed last year, oil and gas revenues were budgeted at 9% of total revenues, which was extra-ordinarily low when compared to regular amounts of 35%. In 2017, contributions from the oil and gas sector are budgeted at 5.4%,
One would expect, in the face of a shrinking oil and gas industry, that there would be a necessity to stimulate other sectors of the economy. To this end, the Minister identified the following sectors:
Another substantial fiscal change stemming from the fall in oil and gas revenue is the imposition of a new tax bracket on “high income” individuals and companies. In simple terms, chargeable income/profits earned in excess of one million dollars in a fiscal year shall attract tax at a rate of thirty percent instead of the flat rate of twenty-five percent.
The table shows the expenditure allocation with comparatives.
Only health spending is expected to receive an increase for fiscal year 2017.
In 2016 there was no mention of asset sales or divestment.
For 2017, the following are planned:
Among the major fiscal measures and allowances noted are:
In addition to the above measures, the Revenue Authority and Transfer Pricing were identified as initiatives to continue pursuit.
In closing, it must be reiterated that oil and gas no longer dominate the revenue projections of the budget. This has necessitated substantial reductions in planned expenditure and another year of operating deficits, both of which bring their economic ramifications.
The VAT regime remains unchanged, with the threshold of $0.5m being maintained and the rate of VAT continuing at 12.5%.
Yacht owners, however, will now enjoy an exemption from VAT on foreign yacht repair services, effective from the first quarter of 2017.
Effective January 2017, individuals whose annual chargeable income exceeds $1m will be taxed as follows:
The income tax rate for individuals who earn below $1m annually will remain at 25%.
The above calculations are based on an annual income of $1.8m
The Personal Allowance calculations are based on the assumption that the same NIS rate was used in both years.
Effective January, 2017, companies whose chargeable profit exceeds $1m will be taxed as follows:
For fiscal year 2017, penalties and interest, wear and tear rates and the oil and gas regime remain unchanged.
According to the Minister, illegal pricing arrangements have become a major source of tax evasion throughout the world. By his estimates, Trinidad and Tobago experienced a loss of at least US$1.4bn per annum since 2011. In the forthcoming fiscal year, the Government will seek to draft improved policies and legislation to regulate transfer pricing.
In 2017, property tax will be fully implemented based on The Property Tax Act 2009, with minor changes to the Valuation of Land Act. According to the Valuations of Land Act, every owner is required to submit a return to calculate the annual rental value. An exemption would be considered for homeowners on the basis of ability to pay.
Significant increases in online purchases have led to the decision to implement a 7% tax charge. This tax will be charged on purchases that arrive via air freight into Trinidad and Tobago, through the use of courier companies or individuals. This tax takes effect from October 20, 2016.
As per fiscal year 2016/2017 budget, there will be an increase in the excise duty of locally produced tobacco by 15% and alcoholic products by 20%. This will lead to a revenue yield of $60m.
Tobacco and Alcoholic products from the Common Market Origin and Extra-Regional Sources will be treated equally, with an increase in the customs duty by 15% and 20%, respectively. This measure is projected to yield a further $60m.
Both measures take effect from October 20, 2016
A 25% rebate on electricity charges will be awarded to persons whose electricity bills are $300 or lower. This measure is effective from December 1, 2016.
The Government, over the next four years, will provide tax relief of 50%, together with other appropriate fiscal incentives, to businesses for private sector funding to provide public infrastructure.
Projects that increase productivity and create meaningful employment will also be considered. This measure will be implemented in the first half of 2017
As stated in the Budget Statement there will be an Agri-Processing Tax Relief and an Entrepreneurial Talent Grant.
For the local agricultural sector, all approved agro-processing operations will now be tax free. A certification process will be put in place at the Ministry of Agriculture, Lands and Fisheries to ensure that only qualified applicants benefit from this tax relief. The qualifying criteria will be that at least 75 % of the processing of agricultural products must be done in Trinidad and Tobago and 75 % of the ingredients must be produced or harvested locally. This measure will be implemented in the second quarter of fiscal 2017”.
Additionally, utilising a national talent search methodology, and a national competition, citizens will be invited and encouraged to present innovative business ideas for evaluation by a panel of accomplished businessmen and entrepreneurs. The top five projects annually will receive a $1m grant to facilitate the development and implementation of their business concepts.
The budgetary allocation to the Tobago House of Assembly for the fiscal year 2017 is $2.35bn, of which $2.05bn will be for recurrent expenditure, $289m for capital expenditure and $20m for the Unemployment Relief Programme (URP). This allocation represents 4.4% of the national budget.
The fiscal incentives are expected to develop Tobago in the following areas:
This budget overview was prepared for information purposes only and does not constitute legal or professional advice. It is intended to inform Aegis Business Solutions Limited and Aegis and Co. clients and stakeholders as a general guide. Readers are encouraged to consult with professional advisors for advice concerning specific legal, accounting or tax matters. Aegis does not hold itself liable for any actions taken as a result of the use of the information presented here other than general information and education.
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