A 20 per cent increase on the Special Consumption Tax (SCT) on cigarettes, and an environmental levy of 0.5 per cent on the Cost Insurance and Freight (CIF) value of all imported goods, to raise $1.7 billion for the 2007/8 fiscal year, were announced by the Government yesterday.

The increased tax on cigarettes, expected to raise $500 million, takes effect today. The current structure of the tax measure will be retained and will mean that the specific tax will be increased from $1,920 to $2,300 per one thousand cigarettes.

The environmental levy, projected to pull in $1.2 billion for the Government’s tax revenue, will take effect on June 1, Finance Minister Omar Davies told Parliament.

Davies, opening the debate on the 2007/08 budget in the House of Representatives, said the environmental levy of 0.5 per cent on the CIF of imported goods had its origins in the 2003/04 budget debate.

Davies said he had proposed in April 2003 to impose an environmental levy of $2.00 per kilogramme on plastic containers of various sizes, but the implementation of the measure was delayed due to concerns from various interest groups for the further evaluation of other harmful materials.

He admitted that there was difficulty in meeting the consensus on how the levy would be implemented, but after several meetings with various interest groups, the administration decided on implementing the new tax this year.

“In 2003, I announced the intention of introducing an environmental levy to assist in meeting the tremendous cost of cleaning the country and restoring many of our precious environment assets which are deteriorating as a result of abuse and inadequate management of solid waste,” said Davies. “We sought advice on how other countries in the Caribbean have dealt with it. In Barbados, for example, they have imposed a similar levy equivalent to two per cent of the CIF value of all importation. We do not intend to go that far. Therefore, the Government proposes to impose an environmental levy equivalent to 0.5 per cent of the CIF value of all imported goods.”

Goods imported by the Government, diplomats, international organisations and passengers with items worth US$500 or less, would be exempted from the levy.

The Government will also be adjusting its Customs User Fee (CUF) after years of outcry from many private sector interests who objected to the administration’s policy under which firms prepay a percentage of their taxes at the port and then claim it as a credit against their income tax liability for the year.

“The manufacturing sector, in particular, has expressed concerns about the effects that the CUF is having on their operations,” said Davies. “As such, it is proposed that tax-compliant firms be allowed to claim the CUF as a deductible expense up to a maximum of $1.5 million for the income tax year of assessment in which it was paid.”

In explaining how the administration arrived at the $1.5 million, Davies said: “If we assume that the small to medium size enterprises import approximately $100 million worth of raw material and capital equipment in a year, a $1.5-million expense allowance would be adequate to compensate for the imposition of the CUF.”

Forecasted expenditure tabled by the finance minister for the fiscal year 2007/08 is $380.3 billion, of which revenues and grants will cover $241.4 billion and loans of $113.8 billion financing the deficit.

This $241.4 billion in projected revenue and grants is primarily comprised of tax revenues of $215.9 billion, or a 14 per cent increase over the 2006/07 fiscal year.

According to the finance minister, in order to achieve the sizeable increase in tax revenues, the Tax Administration Department would be focusing on increasing tax compliance through prudent collection management, including technologically advanced methods.

“To achieve this rate of growth will require a sustained, aggressive compliance programme,” said Davies. “I have instructed the financial secretary to work closely with the director general of tax administration in order to meet our target,” he said.

“It will include forensic and large case audits, a focus on arrears and improvement in the operational efficiency of Customs,” said the minister. “I will be giving personal attention to monitoring this collection programme; we know this target is feasible, but will require concerted effort.”