TAX NEWSFLASH BUDGET 2015 - Caribbean Elections

KPMG 2016 Budget Commentary2016 Budget
Forward-thinking anticipating change
Passionate going the distance
Table of Contents
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October 5, 2015
BUDGET OVERVIEW 2 1
KPMG PROFILE 13
CONTACT US 15
Managing Partner’s Message October 5, 2015
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KPMG is pleased to present our annual analysis and commentary on the 2016 budget statement for your consideration. The first of the newly re-elected PNM Government announced by the Honourable Colm Imbert, Minister of Finance on October 5, 2015. Given the very short period that the Government has had to put its thoughts together, the emerging realities of the country’s financial situation, and the very extensive series of consultations that are expected to follow, we consider this to be an aspirational, interim budget. We expect that the mid-year budget, announced and referenced several times during the Minister’s presentation, will be much more informed and reflective of what is possible. The theme of the national budget was entitled “Restoring Confidence and Rebuilding Trust: Let’s Do This Together”, an obvious reference to the Government’s claim that the previous regime succeeded only in eroding confidence and trust in the political directorate during its tenure. Based cautiously on an oil price of US$45.00 per barrel and a mix of gas prices to reflect our markets, including Henry Hub of US$2.75 per mmBtu and Indonesia of US$8.00 per mmBtu, the Minister sought to elucidate the underpinnings of the budget and highlighted the planned approach to managing Trinidad and Tobago’s economy during this period of stagnation. The Minister projected another fiscal deficit of approximately $2.76 billion, which he indicated will only be possible if the revenue mobilisation measures are successful. These measures are wide ranging and, in many cases, success is dependent on factors outside of the Government’s control, so we view them with cautious optimism with the hope that they materialise to begin the process of revitalising our twin- island economy. We hope that our commentary provides you, our readers, with some insight into the significant issues that affect you and we welcome and look forward to your feedback on our publication.
Robert Alleyne
Managing Partner
October 5, 2015
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After approximately one month in power, the newly elected government, represented by the Honourable Minister Colm
Imbert, has delivered its budget for fiscal year 2016 – reflecting on the commitments made to the Trinidad and Tobago
population in the PNM election manifesto.
During several pre-budget interviews, the Minister had indicated that the budget was not going to be cast in stone since
it was more or less prepared by the previous government and it was often referred to as a “holding budget”, as the new
government would not have a lot of time to make any fundamental or drastic changes. These sentiments were in fact
reflected throughout the budget presentation, since the approach and strategies of dealing with many of the hot topic
issues seemed fairly vague and wide, followed by promises to hold a series of consultations with various stakeholders
within the next six months, making the budget presentation appear to be more of an interim one. This emphasises the
need for the government to assess the true state of the national economy before formulating a mid-year budget update
to put into effect their own plans and policies.
The combination of falling oil prices, sluggish domestic economic performance and the deceleration of the global
economy (particularly China), embedded the fear of a possible recession into the minds of the general public, with
many predicting a budget for challenging times, if not significant austerity measures. Keeping these debilitating
conditions in mind, it is no surprise that the Minister projected another fiscal deficit of $2.8 billion, or an estimated 1.7%
of GDP, but a notable improvement compared to the 2015 revised budget deficit of $7.0 billion or 4.2% of GDP.
Predicated conservatively on an oil price of US$45.00 per barrel, compared to the Economist Intelligence Unit’s July
2015 WTI forecast for 2016 of US$63.60, sets the tone that total projected oil revenue of $5.45 billion may turn out to
be significantly understated, indicating the new government’s commitment to fiscal prudence. Bearing this in mind, it
seems quite ironic that even though the oil price assumption is low, total expenditure net of capital repayments and
sinking fund contribution of $60.29 billion appears to be one of the highest levels since 2008, with the exception of
2015 at $63.05 billion. The new administration apparently plans to spend a similar considerable amount of money in
the current financial year to the previous administration, but one must consider whether the appropriate foundations
are being laid to rebuild the economy of Trinidad and Tobago.
With estimated current revenue contracting sharply in 2016 to $41.6 billion, the new administration plans to implement
and revise a number of fiscal measures such as broadening the VAT base, reviving a property taxation system,
increasing business and green fund levy and introducing a tax regime for the gaming industry. The Minister expects
these tax measures, and the first phase in its reform of the fuel subsidy through the announced increases in Super and
Diesel pump prices, to plug approximately $5.5 billion of the revenue deficit. The Minister then went on to talk about
supplementary revenue of $13.4 billion from an asset sale programme – more privatisations? - and the receipt of what
he called extraordinary dividends. Of course, an element of this would be the proceeds from the recent T&TNGL IPO
– which can be accounted for in Fiscal 2016.
However, one must consider if these measures paired with fiscal discipline is sufficient to “generate a revival in growth
and more resources” as well as “restore our international reputation”. It is with cautious optimism that we anticipate an
improvement of our twin-island economy through the initiatives detailed in the budgetary allocations as outlined by the
Honourable Minister, subject to budgetary adjustments at the mid-year review carded for March 2016.
Economic Overview
October 5, 2015
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BUDGET 2016 – “The Numbers”
The Minister assumed a prudent oil price of US$45 per barrel for 2016 and indicated that total revenue for 2016 is estimated
at $60.287 billion while total expenditure net of capital repayments and sinking fund contributions is estimated at $63.048
billion – resulting in a projected deficit of $2.761 billion.
Source:
Oil Price/Barrel - Average Annual Cushing, OK WTI Spot Price FOB (Dollars per Barrel)
Revenue - Trinidad and Tobago Estimates of Revenue 2008 - 2016 (Revenue comprised of tax and non-tax revenue sources)
Expenditure - Trinidad and Tobago Estimates of Expenditure 2008 - 2016 net of capital repayments and sinking fund contributions
$50
$57
$77
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Economic Overview
October 5, 2015
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October 5, 2015
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October 5, 2015
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AND PROSPERITY
HIGHLIGHTS OF PROPOSALS AND STATUS
PROPOSALS STATUS UPDATE Manufacturing: Effective January 1, 2015 increase rebate from 15% to 20% in production expenditure rebate programme as well as increase the cap from US$3 million to US$8 million (Ref. pg. 74 Budget Statement 2015)
Regional & international producers are privy to a 35% cash rebate on production expenditure capped at US$8M. An additional rebate of 20% on labour costs incurred for hiring nationals of Trinidad & Tobago is also available.
Mutual Fund Industry: Amendment of the UTC Act 1981 to the Securities Act 2012 which includes but is not limited to: - income allocated for distribution will now exclude realised and
unrealised capital gains from the requirement to distribute not less than 90% of such income;
- the 10% concentration and control investment restriction
governing unit schemes will now only be applicable to equity securities;
- the power of the Corporation to restrict its
borrowing to a term not exceeding 90 days is being modified to extend the payback period to 180 days;
(Ref. pg. 75-76 Budget Statement 2015)
Amended via the Finance Act, No. 2 of 2015, assented on January 27, 2015.
Heritage and Stabilization Fund:
Establish this fund as a legal body
Indemnity protection for its Board of Governors
Increase in the floor of the fund from US$1.0 billion to US$4.0 billion
Cabinet approval received but Parliament term closed before implementation.
Tax Administration:
Amnesty for outstanding tax up to 2013, deadline date March 31, 2015
Tax Amnesty was implemented
October 5, 2015
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October 5, 2015
PROPOSALS STATUS UPDATE
Capital Market Tax-deductible Bonds: Introduction of savings bonds for small investors and pensioners in smaller denominations: this will be tax deductible up to $5,000 per annum for 5years (Ref. pg. 78 Budget Statement 2015)
No changes noted
Social Safety Net:
Increase in disability grant by $300, new grant is $1,800 per month
Public assistance grant increased by $300
Personal allowance for individuals age 60 and above from $60,000 to $72,000
Servol Adolescent Programme allocation increased by 12%.
Baby grant of $500 for underprivileged parents for 1 year (Ref. pg. 78-79 Budget Statement 2015)
All fiscal measures listed are in effect.
Families of deceased Security Personnel: A new fund of $1.0 million to be paid to the estate of state protective services killed in the line of duty (Ref. pg. 79 Budget Statement 2015)
This scheme is in effect, however the Police Social & Welfare Association is pleading for proper documented policies to guide this new development.
Fair-Share Programme: Increase in procurement value from $1.0million to $1.5million (Ref. pg. 79 Budget Statement 2015)
No changes noted.
Pensions:
Senior citizens and public officers pensions increased by $500, now $3,500
Government to inject $41.0 million into NIS to meet liability to now include self-employed persons in the NIS scheme ($2.0 million in first year)
Pensions were increased to $3,500, while the self- employed initiative has not been implemented.
Agriculture
Fines for praedial larceny to be increased by 50%
Cost for approved agro-processing commodities will be subject to a 50% rebate up to a maximum of $100,000
Refurbishing of agro-processing commodities will be subject to a 50% rebate up to a maximum of $50,000
40% rebate for cost of Hazard Analysis and Critical control points for Agro-processors up to $150,000
Allocation to the ADB of $75.0 million (Ref. pg. 82-83 Budget Statement 2015)
Fines for praedial larceny increased as stated and the allocation to the ADB has been received. However, no other proposal has been implemented to date.
2016 Fiscal Measures and Comments
October 5, 2015
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Property Tax
Summary of Proposal
Implementing the existing Property Tax Act 2009 using the old levels and rates as a starting point.
KPMG’s view
This has always been a very controversial tax locally but globally it is a well- established revenue generating tax and in principle there ought not to be any objection to its reintroduction. All fair minded citizens must appreciate that in times of plenty, the Government could have forgone this tax but we are all now keenly aware that with the reduction in taxes collected from our main sector, the energy sector, revenue from all other sources such as property must be maximized.
We are heartened that the Minister also mentioned that special provisions would be put in place to ensure that the elderly and indigent with low fixed income would not be disadvantaged.
Who is affected
Value Added Tax
Summary of Proposal
Charging VAT on non-essential luxury goods
Increasing the threshold for VAT registration from $360,000 to $500,000
KPMG’s view
While the reduction in the rate of tax would be most welcomed by consumers, the same consumers may frown upon its introduction on hitherto exempt or zero- rated goods.
Increasing the threshold for registration is likely to reduce the tax compliance burden on both taxpayers and the Board of Inland Revenue who administers the tax. This measure is also likely to increase the costs of inputs of small suppliers.
It is uncertain how those who are currently registered and are below the new $500,000 threshold would be dealt with. Would the VAT registration automatically be cancelled?
Who is affected
All consumers
Positive
Negative
October 5, 2015
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Green Fund Levy
Summary of Proposal
KPMG’s view
This is a nominal increase in absolute terms and should be met with little resistance
Who is affected
All companies carrying on business in Trinidad & Tobago whether exempt from corporation tax or not, though we suspect the increase would be passed on to consumers.
Timing
Business Levy
KPMG’s view
This is a nominal tax on gross sales or receipts and is not likely to cause major financial disruption to any business. It is really meant to tax companies that are making tax losses and not paying corporation tax in any given year, though we suspect the increase would be passed on to consumers.
Who is affected
All business that are making tax losses after 3 years of registration as a business in Trinidad and Tobago
Timing
Gaming
Summary of Proposal
Fast-tracking the passage of the Gambling (Gaming and Betting) Control Bill 2015 with appropriate amendment after consultation to generate taxes.
KPMG’s view
The Government believes that it is not collecting its fair share of taxes from this sector despite the size of the industry, the number of people employed and the amount of revenue generated. It is unfortunate that the Government did not provide the relevant statistical data to support its position. If it is indeed as the Government believes, this measure could very well enhance the Government‘s revenue collection significantly.
Who is affected
Timing
October 5, 2015
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National Insurance
Summary of Proposal
Introduction of legislation to increase all earnings class limit by 13.5%
Increasing the maximum insurable earnings class from $12,000 to $13,600
Increasing contribution rates from 12% to 13.2%
Increasing the cap on joint income received by retirees in respect of National Insurance and Old Age pension from $4,500 to $5,000.
KPMG’s view
These measures are part of the safety net meant to insure those who would not otherwise be insured against mishaps or cater for retirement. They may be absolutely necessary given that we that we are an aging population with a significant percentage of persons over the age of 40 years and the low annual birth rate. These measures are a step in the right direction
Who is affected
Timing
To be implemented on July 04, 2016. Except cap in the increase in old age pension to be effected December 01, 2015
Item Commentary Impact on Tax Payer
Fuel Subsidy
Reforming the fuel subsidy regime after national dialogue
Increasing the price of super gasoline by 15% from $2.70 per litre to $3.11 per litre
Increasing the price of diesel by 15% from $1.50 per litre to $1.72 per litre
KPMG’s view
We have all boasted that the cost of fuel is relatively cheap in Trinidad & Tobago by international standards. We may have been led to believe that it’s our right to share in the country’s resources so the prices must be kept low. In the recent past however, we have noted that another oil rich country such as United Arab Emirates has removed its subsidy. Saudi Arabia and Nigeria are also considering doing the same, so it is to be expected that we would follow suit soon especially now as global oil prices are low and expected to be so in the short to medium term. The overall effect is an increase in the cost of the travelling public, and increased costs of goods, but also a decrease in the cost of the subsidy by the Government.
Who is affected
The travelling public.
Timing
October 5, 2015
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Transfer Pricing
KPMG’s view
We await the introduction of the legislation but it should be noted that there are existing anti-tax avoidance provisions based on the arms-length principle in our current tax laws, which with proper construction and application could minimize perceived leakages. It is hoped however with specific legislation on the issues that there would be more certainty in the applicability of the principle.
Who is affected
Cross-border transactions between related entities. For example, subsidiaries and branches of multinational corporations carrying on business in Trinidad and Tobago.
Timing
Other Measures
Summary of Proposals
Retirees Benefits Programme - free drivers’ permit and passports for retirees over 60 years.
Discount in utility bills for other categories of retirees.
Re-introduction of a 10 year validity passport for adults over 18 years.
Removing the requirement for citizens to complete immigration forms at all official ports of entry.
Increasing by 20% the stipends paid to young persons under the On The Job Training Programme.
Introduction of a Graduate Recruitment Programme in all 23 Ministries.
Introducing tax incentives for construction after consultation with stakeholders.
Growth and development of technical and operational aspects of public- private partnerships.
Exemption from duties and taxes on inputs into the agricultural sector.
Introduction of video conferencing system at the Remand Yard.
KPMG’s view
These measures appear to be all practical and popular in the current economic climate but we reserve further comments until details are provided.
Who is affected
Timing
2016 Fiscal Measures and Comments
October 5, 2015
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Introduction of the Revenue Authority
Summary of Proposal
KPMG’s view
Provided it is managed properly it is hoped that revenue collection would be more efficient to prevent leakages
Who is affected
The Administrators of Tax and all companies and individuals who interact with the local tax authorities (e.g. The Board of Inland Revenue and Customs Department)
Timing
Item Commentary Impact on Tax Payer
Individual Taxation
Summary of Proposal
Increasing the personal income tax exemption limit from $60,000 to $72,000
KPMG’s view
While this change would have the effect of putting more money in the hands of individuals it must be balanced with the Government’s intention to remove certain items from the VAT Exemption Schedule or VAT Zero-Rating Schedule. The extra money in the hands of individuals may very well be collected in VAT, so we caution individuals to be discerning in their discretionary spending.
Who is affected
All resident individuals
Home and Business Security
Summary of Proposal
Incentives and concession to encourage citizens to install CCTV and alarm systems in homes and businesses
KPMG’s view
Unfortunately the times we live in require all of us to take all necessary precautions for our safety. Perhaps this measure is all part of the Government’s much touted crime fighting initiatives.
Who is affected
Timing
KPMG Profile
October 5, 2015
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• Anguilla
• Dominica
• Grenada
• Montserrat
Offices in
• Antigua & Barbuda • St. Lucia • St. Vincent & the Grenadines
• Jamaica
• Guyana
KPMG in Trinidad and Tobago
KPMG is a global network of professional services firms providing Audit, Tax and Advisory Services which has been operating in Trinidad and Tobago for over 46 years.
KPMG in Trinidad and Tobago is locally owned and operated, and comprises of over 100 outstanding professionals whose
aim is to represent the best firm to work with for our clients, our people and our communities.
KPMG in Trinidad and Tobago is a member of the KPMG Caricom grouping which belongs to a sub-region of the Europe-
Middle East-Africa region. We have strong operating relationships with KPMG’s other English-speaking Caribbean and
island practices based in Antigua, the Bahamas, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, the
Channel Islands, Isle of Man, Jamaica, Malta, the Netherland Antilles, St. Lucia, St. Vincent & the Grenadines, and the Turks
& Caicos Islands.
KPMG Profile
October 5, 2015
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Principal areas of business
KPMG’s Audit practice delivers high quality financial statement audits and other assurance services and provide
management and boards with in-depth industry insight and valuable perspectives on salient business issues.
KPMG’s Tax practice provides tax services to clients in all business sectors on the broad range of taxes in Trinidad
and Tobago. This includes advising domestic and international clients on all aspects of taxation to assist our clients to
remain tax-compliant and take advantage of all the tax allowances provided for in the various taxing statutes.
KPMG’s Advisory practice is designed to help clients manage growth, manage risk and governance and improve
performance so they can focus on their core business. From developing business strategies to information risk
management, we combine our industry knowledge with experience to deliver result-focused strategies and approaches
that add value to clients.
Contact Us
October 5, 2015
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Robert Alleyne Managing Partner
69-71 Edward Street Port of Spain Trinidad and Tobago, T (868) 623 1081 ext. 4113 E [email protected]
Robert has over 32 years of professional experience serving both tax and audit clients and is ultimately responsible for all services delivered to large audit and tax clients. For the majority of that time he has served as Lead Engagement Partner, Engagement Quality Control Reporting Partner, IFRS Reviewing Partner on several of the firm’s audit engagements.
Chris Hornby Partner Audit and Tax
Chris is an audit and tax partner with KPMG in Trinidad and Tobago, where he is head of energy services. Chris relocated to Trinidad in March 2010 after spending 5 years as a partner in KPMG Saudi Arabia, and before that he served KPMG’s clients in East Africa. Chris qualified as a UK Chartered Accountant and has over 35 years professional experience spanning four continents.
Gillian Wolffe-O’Neil Director Tax Services
Gillian is an attorney-at-law by profession having been admitted in 1989 to the practice of law in all courts in Trinidad and Tobago. Gillian has over 25 years’ experience in tax which includes 9 years at the Inland Revenue Division where she was responsible for representing the BIR in the local courts to address complex tax issues. Gillian is responsible for advising local and international clients in various sectors on efficient tax structuring of cross-border transactions, tax planning and regulatory procedure.
Nicole Joseph Director Tax Services
Nicole has 17 years tax experience advising clients across all business sectors. She also assist KPMG audit in the review of large companies tax provisions and deferred tax calculations. Nicole is currently a Council member of ICATT and also serves as Chair of ICATT’s Taxation Committee.
We can help KPMG can help you assess the effect of the proposed tax changes in this year’s Budget and point out ways to take
advantage of their benefits or lessen their impact. We will keep you abreast of the progress of these proposals as they
make their way into law.
October 5, 2015
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Dushyant Sookram Partner Advisory
69-71 Edward Street Port of Spain Trinidad and Tobago T (868) 623 1081 ext.
4117 E [email protected]
Dushyant, as Partner in KPMG in Trinidad and Tobago, with engagement responsibility for the delivery of Audit and Advisory engagements in Trinidad and Tobago and has over 23 years of professional experience, 19 of those with KPMG and four years at senior levels in finance and accounting departments in the private sector.
Stacy-Ann Golding Partner Audit
Stacy-Ann is an Audit Partner and has over 18 years’ professional experience in the provision of audit services and recently appointed CARICOM Risk Management Partner. She is also the Partner responsible for Professional Development for KPMG Caricom and Corporate Social Responsibility in Trinidad and Tobago.
Abigail De Freitas Director Advisory
Abigail is a Director of Advisory Services at KPMG in Trinidad and Tobago. She has over 13 years consulting experience providing a range of services including strategic business planning, business process improvement, IT advisory and human resource services.
Marissa Quashie Director Audit
69-71 Edward Street Port of Spain Trinidad and Tobago, T (868) 623 1081 ext.
Marissa is a Director of Audit and has been with our firm for over 18 years including 20 months at KPMG’s Manchester, UK office. Marissa has considerable experience in serving a wide variety of clients across varying industries. She also serves on the Auditing and Accounting Standards Committee of the Institute of Chartered Accountant of T&T (ICATT).
Caveat
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or
entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate
as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.

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TAX NEWSFLASH BUDGET 2015 - Caribbean Elections