Wednesday 28th September, 2005

 
FISCAL MEASURES IN THE 2005-2006 BUDGET
 
 
 
 
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Personal Income Tax

* Increase the personal allowance from the current level of $25,000 to $60,000 per annum;

* Remove the existing personal allowance of $40,000 for individuals 60 years and over;

* Remove the child allowance of $1,200 per child made to a spouse or former spouse regarding the maintenance of a child;

* Eliminate the deduction of up to $18,000 for mortgage interest payments;

* Eliminate the $10,000 deduction for first-time home owners who acquire a home on or after January 1, 2006;

* Remove the deduction of up to $10,000 in respect of shares purchased in a registered credit union;

* Replace the current personal income tax rates of 25 percent and 30 percent with a flat tax rate of 25 percent for all income levels.

These measures will come into effect from January 1, 2006.

Corporation Tax

* Reduce the corporate tax rate to 25 percent excluding the following corporations:

Petro-chemical companies will continue to be taxed at a rate of 35 percent;

Energy (oil and gas) companies will continue to be taxed at 55 percent (of which 5 percent represents the unemployment levy);

These measures will come into effect from January 1, 2006.

Approved Small Companies, Approved Companies carrying on business in a regional development area and Approved Activity Companies:

* Remove the tax credit of 25 percent of the chargeable profits currently available to these approved companies;

* Remove the 7-year limit on the application of the 25 percent tax credit given to approved companies carrying on business in a regional development area and to approved activity companies;

* Reduce the tax on the profits of these approved companies from 5 percent to 0 percent for a period of 5 years;

* Exempt the Gross sales of these approved companies from the business levy for a period of 5 years.

These measures will take effect from January 1, 2006.

Road Improvement Tax

* Incorporate the 5 percent 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:

Unleaded Gasoline (including 95, 92 and 83 RON) from 99.696 cents per litre to 10 cents per litre;

Kerosene from 7 cents per litre to 5 cents per litre;

Auto Diesel from 19.6 cents per litre to 5 cents per litre.

* Remove the refinery margin of 2 cents used in arriving at the postal price of petroleum products;

* Increase the retailer's margin by 2 cents as follows:

95 RON Unleaded Gasolene from 15 cents to 17 cents per litre;

92 RON Unleaded Gasolene from 15 cents to 17 cents per litre;

83 RON Unleaded Gasolene from 12.5 cents to 14.5 cents per litre;

Kerosene from 8 cents to 10 cents per litre; and

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:

95 RON Unleaded Gasolene from $2.37 to $2.43 per litre;

92 RON Unleaded Gasolene from $2.11 to $2.17 per litre;

83 RON Unleaded Gasolene from $2.05 to $2.11 per litre;

Kerosene from $1.22 to $1.20 per litre; and

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.

Investments in Hotels

* Eliminate the 25 percent equity investment deduction currently granted to hotel investors. This measure will take effect from January 1, 2006.

Pensions and Annuities

* Tax the Refunds of pension plans contributions and surrender of annuities at 25 percent;

* Eliminate the tax on transfers of contributions or premiums to another approved plan;

* Extend tax exemptions in respect of the proceeds of an annuity or other periodic sums payable to all residents regardless of age;

* Increase the contribution an employer can make to an annuity on behalf of an employee, to 20 percent of the gross income of the employee;

* Eliminate the tax-free withdrawal from pension funds and deferred annuity plans for the purchase of a first home;

* Increase the maximum monthly value of a pension fund or deferred annuity plan commuted as a lump sum, from $65 to $500 per month.

Employee Share Option Plans

* 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

* 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 the Central Bank); Tax written-off loans as cash payments;

* Tax Motor Vehicles provided for the use of employees at their full market value. Increase the $100,000 limit on the depreciation of motor vehicles to 100 percent of the value of the vehicles and charge 50 percent of the annual wear and tear on the asset as In-Kind Benefits to the employee; Charge 50 percent of the annual rental value of the motor vehicle as In-Kind Benefit to the employee;

* Tax Housing accommodation provided to directors and employees to the fair rental value of the property.

These measures will take effect from January 1, 2006.

Investment, Incentives and Depreciation

* 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;

* Terminate tax holidays for small enterprises;

* Terminate the corporation tax holiday for Free Zones, but retain the indirect tax privileges such as import duty exemptions and VAT exemptions.

* Terminate tax exemptions for new investments on interest on lending to tourism, agriculture, small business and housing;

* Remove the deduction for financial institutions of 10 percent of the increase in loans for approved small companies;

* Remove the 15 percent deduction for capital expenditure incurred by an approved property company in the construction of commercial buildings;

* Transfer of the written down value of all pre-1995 assets 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 of shall be credited to the pool;

* 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 percent of the declining balance.

These measures will take effect from January 1, 2006.

Other Reform Measures

* Remove the tax exemption for the trading income of local authorities;

* Remove the tax exemption for future issues of public debt;

* Expenditure incurred in the production of exempt income will not be treated as a deductible expense; clearly defined provisions for the apportionment of expenditure will be introduced in the taxation legislation;

* Remove the 50 percent uplift for other expenditures including sponsorship of the arts, sports and culture (up to a maximum of $1mn);

* Remove the 100 percent uplift for marginal additions in employment including apprenticeship and employment allowances;

* Calculate relief for bad debts by reference to the Central bank's provisioning requirements for specific bad debts, consistent with the prudential criteria of the Central Bank. This policy will be applicable to all companies;

* Abolish close company legislation subject to a review of the control provisions in the legislation and their impact on other parts of the tax code;

* In the case of related party debt, apply thin capitalization rules to deny tax relief for debt interest where the debt : equity ratio exceeds 3:1;

* Include patents and scientific research to the Seventh Schedule of the Corporation Tax Act.

These measures will take effect from January 1, 2006.

Value Added Tax & Import Duties

* Remove the customs duty and VAT on the following educational tools:

_ Geometry sets, under heading number 9017.20.00;

_ Notebooks, under heading number 4820.10.00;

_ Puzzles, under heading number 9503.60.00;

_ Magazines, not otherwise prohibited to be imported or exported or carried coastwise, under heading number 4902.90.00;

_ Uncoated paper and paperboard, of any kind used for writing, printing or other graphic exposed, in rectangular sheets, under heading numbers 4802.56.00 and 4802.62.00.

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:

* Frozen Meat of bovine: carcasses and half-carcasses - from 15 percent to 10 percent

* Frozen Meat of swine,: carcasses and half-carcasses - from 40 percent to 30 percent

* Frozen Lamb: Carcasses and half-carcasses - from 15 percent to 10 percent

* Goat Meat- from 15 percent to10 percent

* Edible offal of bovine animals, swine, sheep, goats, horses, asses, mules or hinnies, fresh, chilled or frozen - from 5 percent to 0 percent

* Pickled pig tails - from 20 percent to10 percent

* Meat of bovine animals (salted or in brine) - from 5 percent to 0 percent

* Cod - from 30 percent to 0 percent;

* Milk and cream, not containing added sugar or other sweetening matter - from 25 percent to 15 percent

* Condensed milk - from 25 percent to 15 percent

* Prunes - from 15 percent to 0 percent

* All other dried fruit - from 40 percent to 20 percent

* Instant coffee powder - from 20 percent to 10 percent

* Roasted Coffee (not decaffeinated) - from 40 percent to 20 percent

* Wholly milled parboiled rice (in packages of not more than 10 kg) - from 25 percent to 15 percent

* Wheat or meslin flour - from 25 percent to 15 percent

* Shelled Peanuts - from 40 percent to 25 percent

* Cooking oil - from 40 percent to 30 percent

* Cocoa powder, not containing added sugar or other sweetening matter - from 20 percent to 10 percent

* Macaroni only - from 20 percent to 10 percent

* Cereal - from 20 percent to 10 percent

* Mixed vegetables - from 20 percent to 10 percent

* Peas - from 20 percent to10 percent

* Beans - from 20 percent to 10 percent

* Orange juice - from 40 percent to 30 percent

* Grapefruit juice - from 40 percent to 30 percent

* Orange juice: for infant use - from 10 percent to 0 percent

* Grapefruit juice: for infant use - from 10 percent to 0 percent

* Grape juice - from 20 percent to 15 percent

* Preparations for infant use - from 10 percent to 0 percent.These measures will take effect immediately.

©2004-2005 Trinidad Publishing Company Limited

Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell