SHARING
THE OIL WEALTH
We are once again pleased to highlight the major changes in the 2006
Budget, which we believe would directly affect our clients and associates. The theme of the 2006 Budget is “Sharing The Oil Wealth”.
Total Government
expenditure is expected to increase to a massive 34 billion dollars. The Government expects that this budget will address
the basic needs of the population, embracing the lower and to some extent the middle levels of both the public and private
sector workforce.
The economic outlook appears favorable with the real Gross Domestic Product (GDP)
increasing by 6.5%, which is the 12th consecutive year of positive growth in T&T, while the unemployment rate
reduced to an average of 8.5%.
Most of
the increased revenue is expected to come from the energy sector. The Prime Minister identified that in 2005, T&T has
evolved to become “a global leader in the gas and petrochemical markets”,
while the non-energy sector also registered positive growth rates. He also noted that the country has become
“the centre for financial services, business and manufacturing in the
Caribbean” and “one of the fastest growing economies in Latin America and the Caribbean”. The country’s
international credit rating has also improved to A- and Baa2 by Standards and Poors and Moodys respectively
in recognition of the quality of the macro-economic management.
While we append a fuller breakdown of the budget 2006 measures, we list below some of the major changes.
1. Personal Income Tax rate has been reduced to 25%. The personal
allowance has been increased to $60,000. Many of the former allowances have been abolished (child, mortgage interest, credit
union etc.)
2. Corporation Tax rate has been reduced to 25%. Many of the allowances previously
given are now abolished.
3. The written down value of all pre 1995 assets are to be pooled together with
their respective category of post 1995 assets
4. V.A.T. and custom duty have been removed from paper, magazines
etc., and import duty has been removed from a range of food items with immediate effect.
5. Perquisites like loans at reduced rates, housing and motor
vehicle use would now be taxed at the market value of these benefits.
6. Free tertiary education to U.W.I., U.T.T & COSTATT
Details of the fiscal policies that will affect your business activities for the coming year
Personal Income Tax
ØPersonal Income
TaxAllowance increased from $25,000 to $60,000 per annum.
ØIncome Tax rates
of 25%and 30% will be replaced be a flat rate of 25% for all income levels
As a result the following items will
be removed:
ØPersonal allowance of $40,000 for individuals 60
years old & over.
ØChild allowance of $1,200 perchild.
ØDeduction of up to $18,000 for mortgage interest payments.
ØDeduction of $10,000 for first-time
home owners who acquire a home on or after Jan 1st2006.Deduction of $10,000 inrespect of shares purchased
in a registered credit union.
Corporation Tax
Ø
Corporation Tax rate will be reduced to 25%, excluding Petro-chemical &
Energy companies, which will remain 35% & 50% respectfully.
Ø Removal
of $100,000 restriction on motor vehicles for wear and tear purposes.
Approved
Small Companies carrying on business in a regional development area & Approved Activity
Companies, will be affected by the following:
A definition of this is still awaited.
Ø Removal
of the tax credit of 25% of the chargeable profit.
Ø Removal
of the 7-year limit on the application of the 25% tax credit given to these companies.
Ø Reduction
of the tax on the profits of these approved companies from 5% to 0% for a period of 5 years.
Ø Approved companies will
be exempted from paying Business Levy on the Gross Sales for a period of 5 years.
Pensions and Annuities
Ø
All refunds taxed at 25%;
Ø No tax on transfers to
another approved plan;
Ø Tax exemptions on proceeds extended to all residents;
Ø Employee contribution threshold now 20%;
All these measures will come into effect from Jan 1st 2006
Employee Share Option Plans
Ø Remove the reduced rates of tax on the
transfer of shares (under
Employees Share Option Plans) from the Trust to the employee.
Include the benefits under the ESOP in the assessable income of the employee and tax accordingly with effect from January
1, 2006.
Benefits
In Kind
Ø Tax
loans to employees on the difference between the interest rate charged and the arm’s length commercial rate of interest
(as advised by the BIR and Central Bank); tax written-off loans as cash payments to employees.
Ø
Motor vehicles taxable on 50% of the annual wear and tear or 50% of the annual rental value.
Ø Tax housing accommodation provided to directors and employees on the fair rental value of the property.These
measures will take effect from January 1, 2006.
Investments, Incentives and Depreciation
Ø Terminate tax holidays for new investors
for regions and approved
activities under the Corporation Tax Act and for approved enterprises under the Fiscal
Incentives Act; tax holidays for tourism projects under the Tourism Development Act will not be removed at
this
time.
Ø Terminate tax
holidays for small enterprises.
Ø Terminate
the corporation tax holiday for Free Zones, but retain the
indirect tax privileges such as import duty exemptions
and VAT exemptions.
Ø Terminate tax exemptions
for new investments on interest on lending
to tourism, agriculture, small business and housing.
Ø Remove the deduction for financial institutions
of 10% of the increase
in loans to approved small companies.
Ø
Remove the 15% deduction for capital expenditure incurred by an
approved property
company in the construction of commercial
buildings.
Ø Transfer of the written down value of all pre-1995assets to their respective classes under the Seventh Schedule
of the Income Tax Act; on disposal of an asset within the Seventh Schedule of the Income Tax Act, the full proceeds of the
assets disposed shall be credited to the pool.
Ø
Include all industrial buildings that qualify under the Income Tax (In Aid of Industry)Act in the depreciation
pool under the Seventh Schedule of the Income Tax Act. These buildings will be
depreciated at a rate of 10% of the declining balance.
Other Reforms
Ø
Removal of the tax exemption on trading income of local authorities.
Ø
Removal of the tax exemption for future issues of public debt.
Ø Expenditure
incurred in the production of exempt income, not a deductible expense.
Ø Removal
of the 50 percent uplift for expenditure on sponsorship of the arts, sports and culture.
Ø
Removal of apprenticeship and employment allowances.
Ø Bad
debt relief to be calculated in accordance with the Central bank’s provisioning requirements.
Ø Thin capitalisation rules for related party debt.
Ø Abolish close company legislation – subject to review.
Ø Capital allowance on patents and scientific research.
Ø Removal of the Road Improvement Tax with immediate
effect.
This tax
is to be incorporated into the petroleum excise tax.
Value Added Tax and Import Duties
Remove the customs duty and VAT on the following educational tools: -
Ø Geometry
Sets, under the heading number 9017.20.00
Ø Notebooks,
under the heading number 4820.10.00
Ø Puzzles,
under the heading number 9503.60.00
Ø Magazines, not otherwise prohibited to be imported or exported or
carried
coastwise, under heading number 4902.90.00
Ø Uncoated paper and paperboard, of any kind
used for writing, printing or other graphic exposed, in rectangular sheets, under heading numbers 4802.56.00 and4802.62.00
These
measures will take effect immediately.
Subject
to the approval of the Caricom Secretariat, the import duties on the following food items will be reduced as follows: -
Ø Frozen
meat of bovine: carcasses and half-carcasses – from 15% to 10%
Ø
Frozen meat of swine: carcasses and half-carcasses – from 40% to 30%
Ø
Frozen lamb: carcasses and half-carcasses – from 15% to 10%
Ø
Goat meat – from 15% to 10%
Ø
Edible offal of bovine animals, swine, sheep, goats, horses, asses,
mules or hinnies, fresh, chilled or frozen – from 5% to 0%
Ø
Pickled pigtails – from 20% to 10%
Ø
Meat of bovine animals (salted or in brine) – from 5% to 0%
Ø
Cod – from 30% to 0%
Ø Milk
and cream, not containing added sugar or other sweetening
matter – from 25%
to 15%
Ø Condensed milk – from 25% to 15%
Ø Prunes – from 15% to 0%
Ø All
other dried fruits – from 40% to 20%
Ø Instant
coffee powder – from 20% to 10%
Ø Roasted
coffee (not decaffeinated) – from 40% to 20%
Ø Wholly milled parboiled rice (in packages
of no more than 10 kgs) – from 25% to15%
Ø Wheat or meslin flour
– from 25% to 15%
Ø
Shelled peanuts – from 40% to 25%
Ø Cooking oil – from 40% to 30%
Ø Cocoa
powder, not containing added sugar or sweetening matter – from 20% to 10%
Ø Macaroni only – from 20% to 10%
Ø
Cereal – from 20% to 10%
Ø Mixed Vegetables – from 20% to 10%
Ø Peas – from 20%
to 10
Ø Beans
– from 20% to 10%
Ø
Orange Juice – from 40% to 30%
Ø Grapefruit Juice – from 40% to 30%
Ø Orange juice for infant
use – from 10% to 0%
Ø
Grapefruit juice for infant use – from 10% to 0%
Ø Grape juice –
from 20% to 15%
Ø
Preparations for infant use – from 10% to 0%
ROAD
IMPROVEMENT TAX
Incorporate
the 5% Road Improvement Tax into the petroleum excise tax and abolish the Road Improvement Tax with immediate effect.
PETROLEUM
PRODUCT PRICES
Reduce
with immediate effect, excise duties on petroleum products as follows: -
Ø Unleaded gasoline (including 95, 92 and
83 RON) from 99.696 cents per litreto 10 cents per litre.
Ø Kerosene from 7 cents per litre to 5 cents
per litre.
Ø Auto Diesel from 19.6
cents per litre to 5 cents per litre.
Ø Remove
the refinery margin to 2 cents used in arriving at the postal price of petroleum products.
Increase the retailer’s margin by 2 cents as
follows: -
Ø 95
RON Unleaded Gasoline from 15 cents to 17 cents per litre.
Ø
92 RON Unleaded Gasoline from 15 cents to 17 cents per litre.
Ø
83 RON Unleaded Gasoline from 12.5 cents to 14.5 cents per litre.
Ø
Kerosene from 8 cents to 10 cents per litre.
Ø
Auto Diesel from 10 cents to 12 cents per litre.
As a result of the change in the excise duty and ex-refinery margin, the wholesale price will be
adjusted as follows: -
Ø 95 RON Unleaded Gasoline
from $2.37 to $2.43 per litre.
Ø 92
RON Unleaded Gasoline from $2.11 to $2.17 per litre.
Ø 83
RON Unleaded Gasoline from $2.05 to $2.11 per litre.
Ø Kerosene
from $1.22 to $1.20 per litre, and
Ø Auto
Diesel from $1.16 to $1.18 per litre.
These measures will: -
- Improve the cash flow of wholesalers who bear the burden of subsidy payments in the first
instance;
- Significantly
reduce the level of subsidy payments by the Government; and
- Enhance the viability of the operations of retailers.
