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Saturday, October 21 2017 @ 05:31 PM AST

Trinidad and Tobago's tax on property explained

Buidling a new plant or installing new machinery? Under the tax regime on property that government is proposing to introduce this fiscal year, effective July 1, 2014, such upgrades will have to face the taxman. Larry Howai, minister finance and the economy, said in Parliament on September 9: "A land and building tax regime is a key pillar in all modern tax systems. Recurrent land and building taxes meet all the conditions of a good and fair tax. The backbone of a successful land and building tax is the proper valuation of properties within a transparent framework. This will require the property rolls being brought up-to-date. I propose to phase in these taxes over the period 2014 to 2017, during which time the properties will be valued and consultations will be held with all stakeholders. In phase 1 and effective immediately, we shall commence valuations of all industrial land, including plant and machinery, whether housed or unhoused with a view to implement this tax by July 1, 2014.

"In phase 2, we will impose a tax on commercial properties and in phase 3, we will impose a tax on agricultural lands and on residential properties with a deductible allowance to provide relief to certain agricultural land owners and low-income homeowners."

In their review of the 2014 budget, Ernst & Young Caribbean, headed by tax directors Wade George and Gregory Hannays, wrote that "the property tax regime implemented by the previous government but never enforced, was a four-tiered regime based upon present market value of properties. Under that system, residential, commercial and agricultural properties were to be taxed at the rates of 3 per cent, 5 per cent and 1 per cent respectively."

Prior to this tax on property regime, properties in T&T were subject to tax either under the provisions of the Municipal Corporations Act and the Property Tax Regime in relation to industrial buildings.

In relation to residential properties, the annual taxable value (ATV) was expected to be the annual rent to be obtained from T&T resident tenants and, as such, rental rates expected to be obtained from expatriate tenants would not form the basis for assessment, Ernst & Young explained.

"Whether a property was owner occupied or presently tenanted would not change the ATV valuation methodology which would be based upon expected annual rental income in all instances. In order to expedite the valuation process in relation to residential properties, the government could consider performing the valuations based on zoning and seek to apply a flat tax on properties below a certain threshold. We concur with the (finance) minister that a recurrent Land and BuildIng Tax is a good and fair tax. However, the public would need more information with regard to rates and the valuation methodology in order to determine how onerous the tax would be. We welcome the government's phased approach and we anticipate that the government would be mindful of the issues that arose when the previous government attempted to overhaul the property tax regime. It did not appear that the policy makers, at that time, were rethinking the imposition of the tax on plant and machinery, despite the manufacturing sectorrs objection," EY Caribbean said.

In addition, it appeared that the property tax conflicted with government's proposal to incentivize manufacturers by increasing capital allowances for direct tax purposes on the installation of new plant and machinery. An annual taxable value that includes plant and machinery could act as a disincentive to manufacturers retooling and could hinder the Government's plans towards further diversification of the economy by export-led growth, EY's Wade George had told a post-budget forum in Port of Spain. EY Caribbean said: "The government's proposal to re-capitalize the EXIMBANK to finance exports into extra-regional markets also seems at odds with its intention to tax plant and machinery."

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