Trinidad and Tobago has been severely affected by the drop in oil and gas prices, as well as a decline in production of both commodities. Although the tax incentives provided to energy projects in recent years are expected to bring about significant economic returns in the near future, these have led to minimal taxes collected from oil companies in 2016. Exploration and drilling activities currently benefit from a full accelerated capital expenditure write-off, with more than a 100% write-off for operations in deepwater areas. In addition, no tax revenue is expected in the near future from supplemental petroleum taxes, as these are levied when prices exceed $50 per barrel.
The national budget for the fiscal year from October 2015 to September 2016 was based on a crude oil price of $45 a barrel and a natural gas price of $2.75 per million British thermal units (Btu). Revenue was estimated at TT$60.2bn ($9.3bn), while expenditure was estimated at TT$63bn ($9.7bn). The revenue figure included TT$18.6bn ($2.9bn) to be raised through the sale of some state assets.
Lower oil and gas prices than originally budgeted, and a delayed improvement in tax collections, lead to a mid-year review of the budget in April 2016. Based on $35 oil price and $2 per million Btu gas price, the government revised tax revenues downward to TT$44bn ($6.8bn) and expenditure to TT$59bn ($9.1bn). Some measures to improve tax collection were also introduced on this occasion.
First, a 7% levy on online purchases was announced effective September 2016 to curb the drain on foreign exchange. It is as yet uncertain whether such a measure will represent an effective deterrent, as in the current economic environment, online goods and services may still be cheaper than some products available locally. Second, subsidies on diesel fuel and super petrol l were reduced by 15%. The increase in fuel prices will likely result in higher public transport costs and, by extension, to an increase in the cost of goods. The rate of inflation, which has been managed at relatively low levels in the recent past, may also increase. Third, taxes on alcohol and tobacco were increased effective May 2016. Lastly, the Property Tax Act of 2010 repealed the old tax system on land, buildings, plants and equipment. The government had originally announced its intention to implement the tax from 2016, albeit at the existing valuations. However, tax under the act will be now based on new valuations starting in the 2017 fiscal year. A property tax based on modern values is expected to become a major source of government revenue.
Some proactive measures were also announced to incentivise economic activity and improve efficiency in the tax system. With respect to property development, incentives were introduced for the development of residential sites, together with tax relief for the construction of commercial buildings and multi-storey car parks. Rental income and gains on sale of such newly constructed buildings will be tax exempt up to 2025. In addition, tax holidays and allowances for agro-processing projects were announced, coupled with a plan to channel some of the beneficiaries of “make-work” programmes to agricultural projects.
As of mid-2016 there are no clear indications yet with respect to a new Revenue Authority, although improved tax collections are expected to come from a revised value-added tax (VAT) system. The government has signalled its intention to ensure that businesses get their VAT refunds within three months, removing a current impediment to wealth creation.
There must be renewed focus on diversifying the economy and increasing productivity. It is now fully recognised that the surpluses generated from non-renewable resources, which constituted the basis of the high standard of living, may vanish. This sentiment is coupled with a cautious optimism that, given the high level of literacy and creativity, the present challenges might turn into fruitful opportunities.
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