I am not so sure that it could be said that you are standing in solidarity with TC Islanders on this issue; most of the people wish to make a stand on this. Both political parties, the business community and the vast majority of the people of the the TCI are solidly against VAT. What better issue to stand on than this? If our elected representatives are being asked to exchange principle for expedience it will be a sad day. Principle is the foundation of all things that are good; expedience is a slave to convenience and a master of dishonesty. We cannot compromise with dishonesty but only seek that compromise is consonant with principle and the true facts.
You are right in your analysis of the relative merits of bringing the matter to the attention of the international community. This is a matter that can only be resolved between the TCI and the UK, there is no international body that would intervene in such a matter; save for the EU Court on Human Rights. An intervention by this court would take years and be nothing but a historical footnote.
The folly of this stand, as you put it, may not be as certain as you have suggested. Your comparison of the newly elected government with Michael Misick's administration is not a welcome one. I venture it is also not a fair comparison. To abandon the mandate upon which they were elected would not appear to be good council. Neither would it appear to give any meaning to democracy.
The new administration has been very much more mature and measured in their approach than you have given credit. I will remind you that our Minister of Finance is, and was, generally in support of VAT. To dismiss his opposition as being based on churlish confrontation to the authority of the UK, is to completely miss the facts that have caused him to change his position. To discount the Minister as “speaking off the top of his head” is a gross injustice. It is an injustice that dismisses his careful consultation with the public and his study of the facts. Who are you to brand him as being dishonest in his convictions?
It is on the facts that I must correct you.
It is the full intention of the elected administration to present Bills on debt and taxation. Indeed the Repeal Bill is the first of those. It is paradoxical that the acting AG pointed out bringing the Bill for debate was not only the right of the House, but also their duty.
Adequate assurances of fiscal soundness, fairness and sustainability are the matters that are central to the debate, that is true. However, the connection that you appear to make between VAT and these objects is less clear. It is the very essence of the debate that VAT will damage all three of these objects.
Your closing two paragraphs encapsulate the dilemma. “Intelligent minds can differ on whether VAT is good for the TCI” All the evidence that has been presented on this matter differentiates the benefits and performance of VAT in an economy such as we have. The evidence in favour of VAT presents the implementation of VAT in other much larger jurisdiction as compelling. No evidence has been produced that VAT will be suited to our particular circumstances. Quite the reverse in fact, all evidence and data suggests that VAT will be an unmitigated disaster.
By most economists and politicians, it is true to say “the best option for the Caribbean region” is VAT, provided that you also accept it with the caveat of “trade liberalization”. It is not the best option in the event that trade liberalization is neither possible or beneficial. Neither is it the best option in the circumstances that trade liberalization is neither the object or intention. Customs Duty will be retained at 26% on average for the foreseeable future. The TCI will be a jurisdiction where virtually no goods are exported and there is no home production for the foreseeable future. The TCI imports more that it consumes, a fact that has been accepted by even the most fervent supporters of VAT at the IMF as being a major justification for not implementing VAT.
“It is appropriate to temper general support for the introduction of a VAT into smaller economies with a note of caution. The gain is likely to be lower in such countries than elsewhere. In some cases, there may be little gain, or even a loss, relative to a broad-based tariff”...
“Fixed collection costs may be a particular concern in small economies. As discussed in Chapter 5, there is strong evidence that there are substantial fixed elements in complying with the VAT, which consequently bears more heavily on smaller firms. Insofar as the average size of firms above the appropriate VAT threshold tends to be smaller in smaller economies—which one might expect to be the case—so collection costs will consequently be more burdensome. Presumably there are fixed components to tariff collection costs too.”...
“the point needs to be made that in the absence of domestic production there is no economic difference between a consumption tax and a tariff.” ...
“Less tangible arguments—such as the wisdom of building a tax system suited for a more sophisticated future— are important, but do not reduce the value of simple calculations.”
Keen and Stiglitz et al – The New VAT – Published by the IMF
The argument that VAT has worked elsewhere is a fallacious one. The question is will it work in the Turks and Caicos? I would rather take the word of Michael Keen the Deputy Director of Fiscal Affairs at the IMF over yours. Keen is considered to have been the single greatest force and advocate of the rapid spread of VAT in the last few decades. Yet even he concedes that VAT can be detrimental in a small island economy. Your reasoning is false, it is a reductio ad absurdum.
Hundreds if not thousands of pages of evidence have been presented to the IA showing why VAT will be detrimental. Yet, to date, no facts or arguments has been provided to undermine that evidence. The argument in the pro VAT side can be reduced to this and this only. VAT is good and VAT has been implemented in other jurisdictions. The anti VAT movement is fully aware of the benefits of VAT but at the same time equally assured that not a single one of those advantages would accrue in the context of the TCI. Fortunately, the manifest disadvantages of VAT in a small island jurisdiction have been addressed in countless peer reviewed papers, most of which come from the IMF itself.
If you doubt that to be the case, I would like to refer to the recent request for documents from the Appropriations Committee. The CFO refused to provide the documents in support of VAT. His claim was that they are confidential! Only after being informed that he could not lawfully conceal them, did he make a half hearted attempt and produced just two documents. These documents did not provide anything further than the reasoning that I have already mentioned. Those documents did state reliance on another report, the Roe Report 2010. However, the Roe report does not recommend VAT as the only option. It also suggests that the existing taxation system might be the best option. Hardly a definitive case. The Roe report did not evaluate the performance of VAT in the TCI. Clearly, no-one has! What is becoming certain is the arbitrary nature of the decision. A reckless and irrational decision that was taken by unelected officials on flimsy or non-existent evidence.
Throughout this sorry affair the Governor and the CFO had been claiming that the justification for the decision were contained in these secret documents. Therefore the case for VAT has been predicated the most vulgar mistruths and dishonesty. To call this lie, this manipulation, this perversion of good governance, is wrong in your opinion. But if this matter were allowed to pass without contest what future is there? If our future is to submit to the will of the UK regardless of any fact or reason, you would be correct in you suggestion that we should indeed go independent. It is my intention, an intention that has wide popular support, that the UK will not be let off so easily. Upon this basis you are encouraging us to jump into uncertainty. Stand aside when the only evidence we have is that VAT will be detrimental. Surely this could not be in the interests of good sense, or public policy? It certainly is not good government or governance. The UK will be held to account upon their own standards, no other course of action will suffice.
As far as your suggestion that there was ample consultation I dismiss this with contempt. 6 months consultation? That is a bold claim with not an ounce of truth; as the official government statement confirms:
17-APR-2012 11:41 AM
"The Government of the Turks & Caicos Islands is in the process of building a taxation system that will help restore fiscal balance and a sustainable economy, alleviate poverty and contribute to other critical social development with the introduction of a modern and broad-based Value Added Tax (VAT). Given the state of public finances this Government cannot afford to delay the implementation of Value Added Tax (VAT), and therefore is fully committed to an implementation date for VAT of April 1st 2013.
In keeping with this Government's commitment and obligation to transparency, and to consult with stakeholders on major policy issues, the Implementation Team is pleased to present this Green Paper on VAT for public dissemination and discussion. This paper outlines Government's policies and proposals as contained in the VAT Bill that is required for a successful imp1ementation and efficient operation of VAT in the Turks & Caicos Islands. This document will be open to public discussion and feedback until May 25th 2012."
The consultation period was actually a little over a month. The green paper concurrent with and in addition to the above statement, confirmed the question of implementation was not under review or consultation, the only consultation was as to how VAT was to be implemented. This was reconfirmed to me at a meeting of the Chamber of Commerce. The CFO said that if I continued to question whether VAT should be implemented he would be “forced to leave the meeting”.
As an attorney versed in common law, and from the Bahamas, you will no doubt be aware of the so called Sedley requirements:
“The Sedley Requirements
consultation must be made at a time when proposals are at a formative stage
sufficient reasons for the proposal must be given to allow intelligent consideration and response
adequate time must be given for response
the product of the consultation must be conscientiously taken into account in finalising proposals
The Cabinet Office code of practice requires that 12 weeks should be given for responses. Shorter timescales may be appropriate in limited circumstances, for example where a full consultation process has already taken place and the public body wishes to seek additional comment on amended proposals.”
Failure to follow the procedural requirements is sufficient to invalidate any decision that falls from it. It is clear from the above statement that the decision to implement VAT was already decided, and therefore was not at the formative stage. Neither was there sufficient information or sufficient time for a reasoned response. Despite the short time period a great deal of evidence was given to the consultation team, but as you can now see, it was discarded and not conscientiously taken into account.
The whole process was a sham, simply an attempt to obtain a rubber stamp with no real intention of consulting in any real sense. If that was not enough the process was further invalidated because a consultation was started almost a year previously... the results of this consultation only came to light in the VAT Green Paper:
“VAT was previously considered for implementation but did not receive the commitment and support required for successful implementation. However, a renewed commitment by Government to address fiscal deficiencies has lead to an implementation date of April 1st 2013.” (VAT Green Paper)
Clearly, the question had already been answered but the decision was now to ignore it.
Finally the question of whether the “Governor has done nothing our Constitution does not authorise him to do”. This is perhaps the matter on which all will turn. Putting on one side the irregular consultation. Is there any limit to the scope of the Governors powers? This is the matter that is closest to my heart. It is also something that will be a matter of judicial consideration in the very near future.
So far as the TCI Constitution Order 2011 and those previously, the relevant provisions are the same, even during the reign of the Interim Amendment Order's.
"(2) Nothing in any law or done under its authority shall be held to contravene subsection (1)—
(a)to the extent that the law in question makes provision for the interference with, taking of possession or acquisition of any property, interest or right—
(i) in satisfaction of any tax, rate or due;" ...
"provided that the provision or, as the case may be, the thing done under its authority is reasonably justifiable in a democratic society;"
The first question; is imposition of a substantial change in the tax system appropriate in a democratic society if it was the arbitrary decision of a single unelected person? The second question is would it be appropriate to veto a repeal that was voted for unanimously by elected representatives? I will not answer these questions, I will leave it for you and other readers to consider.
The more fundamental question is, are the powers of the Governor, or Her Majesty on the advice of her Privy Council, to make laws for the “peace, order and good government”, in any way restricted? Principally that turns on one thing, does the Bill of Rights 1689 have full effect in the TCI. If it does no taxation or appropriation could be legal without the explicit Grant of Parliament or a local representative authority. This is the same effect it currently has in the UK.
The question of the validity of laws in the Colonies was addressed in the Colonial Laws Validity Act. It says that no Colonial Law can be invalidated unless it is repugnant to an Act of Parliament that is either explicitly or for the necessary intendment of the colony. But any law that is made contrary to an Act is void and of absolutely no effect.
I have taken the view, being the Bill of Rights is a current Act of Parliament and it must be for the necessary intendment of the TCI, it follows that the powers regarding taxation and appropration must be limited in the same way as they are in the UK. Therefore, the powers are restricted to that extent.
Some doubt has been cast over whether the Bill of Right is necessarily intended for the TCI, even though it contains provisions for the succession of the Crown.
This question actually came up in Parliament in 1700 and they saw fit to pass an Act that explicitly stated that the Bill of Rights extended to the Turks &Caicos Islands. This is recorded in the Reception of Laws of the TCI in 1848, the first compendium of laws for the TCI.
The Attorney General has been unable to traverse these assertions, not for want of trying, but has invited for the matter to be tried. We shall all have to wait for the result of this.
In closing I cannot accept the supposition that VAT is the only solution for the TCI. Being that no other OT, or the Bahamas have VAT. If this be the case, it can only be assumed that VAT is equally vital to those other places. Is there truly no corner of the globe where VAT is not suitable or appropriate? I think not.