KPMG in Trinidad & Tobago Budget 2013: Tax Newsflash

TAX
TAX NEWSFLASH
KPMG in Trinidad & Tobago Budget 2013

October 1, 2012
Overview
October 1, 2012
Whats Inside

2013 Budget Overview KPMGs Thoughts Budget Highlights Proposed Fiscal Measures
implement a series of initiatives aimed at stimulating direct local and international investments in upstream exploration and production activities. The Minister recognized that funding for the stimulus measures would be considerable; therefore, in order to minimize the burden on the Treasury, he plans to maximize the use of the public-private partnership concept. The Minister also sought to deal decisively with some legacy issues, namely, the CLICO and Hindu Credit Union debacles and the deteriorating industrial relations climate. These issues had the potential for severely disrupting the forward momentum that is planned. The Minister referred to the unsatisfactory competitive ranking that our country recorded as a reflection of the existence of significant business and investment inhibitors in the public service. In this regard, the Ministry of Trade, Industry and Investment is tasked with implementing various measures to create a more conducive investment environment. The issue of crime also commanded the Ministers attention as another national issue that has put a damper on the investment climate. He outlined the goal of reducing violent crime by 50% in the next three years through the implementation of various programmes and the strengthening of the law enforcement capability of the protective services. The economics behind the 2013 Budget see the Minister continuing to run a budget deficit of $7.67 billion, or 4.6% of GDP, which is consistent with the 2012 Budget.
Stimulating Growth, Generating Prosperity Stimulus or austerity? That was the policy choice facing the Honourable Minister of Finance and the Economy, and his team, in developing the 2013 National Budget a choice which many finance ministers have faced in recent months. It is refreshing that the new Minister, just three months into the job, has followed through on the retraction of his initial stance to introduce austerity measures and instead has chosen the stimulus route, albeit in a measured and watchful way to avoid extravagant spending. The Minister explained that he was able to make this positive choice based on an analysis of the economic situation facing the country healthy foreign exchange reserves, a relatively low debt-to-GDP ratio, and a robust, well-capitalized banking system. The Minister has indicated that he plans to stimulate those non-energy sectors of the economy with the greatest potential for growth, while simultaneously recognizing that the energy sector will continue to be significant to the achievement of the growth agenda. Particular attention will be placed on revitalizing the construction sector through judicious spending on infrastructure projects. In addition, the Minister plans to
2012 KPMG, a Trinidad and Tobago partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Trinidad and Tobago.
Overview
The Minister stated that his target is to eliminate the budget deficit over the next four years. This will entail conducting a comprehensive review of the current tax structure, as part of a planned transformation of Trinidad and Tobago into a modern high-performing engine of growth. This review will commence in 2013. Interim measures to improve revenue collections, and thus narrow the budget deficit, will include moving forward with the Lands & Buildings Tax, reduction of the Fuel Subsidy, and reviewing the system of government Tax Collection (including Administration). In this Budget, the Minister has announced the first step in reducing the Fuel Subsidy, through an immediate increase in the pump price of Premium Gasoline to $5.75 per litre. Further adjustments are likely to follow the improved usage of, and access to, CNG by a targeted 90,000 high mileage vehicles.
October 1, 2012
The Minister commented that the other two interim measures will be approached in a more consultative fashion, to avoid the negative reaction to previous attempts to amend property taxes and introduce a Revenue Authority. Finally, in order to alleviate inflationary pressure on citizens particularly on the most vulnerable from global food price increases, the Minister mentioned the pre-heralded temporary removal of VAT from food items. However, no details of this were given, and we must all await the development of amended VAT schedules showing which additional food items will be zero-rated and which, being regarded as luxury items, will still bear VAT in full!
KPMGs Thoughts
WE AT KPMG ASK THE QUESTION: What do we stand for as a nation and how do we wish to be perceived by others? Here is what we think growth and prosperity look like . . . There is a deeply rooted sense of national pride, fellowship and goodwill among all sectors of the society Our leaders are known for fair play and ethical behavior Our value system and beliefs are the envy of other nations We are known as experts and gurus in the energy sector The public has confidence that the decisions of the government are made in the best interest of the nation Our people and our visitors feel safe going about their everyday business Our country attracts quality investments Our national institutions are the best We are seen as leaders in our region We punch well above our weight on the Global stage
October 1, 2012
ARE WE THERE YET? CERTAINLY NOT! Our pursuit for growth and prosperity is a long-term one. Therefore, it would be inappropriate to place the entire burden for growth and prosperity on this budget, which after all is short-term and reactionary in its outlook. The budget does seem to be more focused than previous ones. However, there is still a sense that we are embarking along so many different paths to achieve the desired end state and, we are not fully consolidating and leveraging the skills and expertise that we have developed over the years in the energy and natural resources sector.
Budget Highlights
October 1, 2012
Predicated on US $80 per barrel for crude and US $2.75 per mcf for gas, the Minister indicated that it was a deliberate decision to operate the fiscal year 2013 with a deficit of 4.6% of GDP.
PROJECTIONS 2013
Total Revenue Oil Revenue Non-Oil Revenue Total Expenditure (net of capital repayments and sinking fund contributions) Budget deficit
$50.736 b $20.038 b $30.698 b
$58.405 b $7.669 b
KEY ALLOCATIONS Education and Training Health National Security Public Utilities Housing Works and Infrastructure Transport Agriculture $9,149.1 m $5,108.7 m $5,503.7 m $3,783.1 m $3,507.3 m $2,412.9 m $1,682.8 m $1,338.3 m
MEDIUM TERM REVENUE INITIATIVES Land and Buildings Tax to be introduced Fiscal year 2014 Fuel Subsidy Reduction Tax Collection review of the entire tax system including tax policy, administration and enforcement.
Fiscal Measures 2013
October 1, 2012
Growth, Trade and Investment Building the Financial Services Institutions Service Industry with
It is proposed to introduce legislation associated tax incentives early in FY13.
the Income Tax Act and Corporation Tax Act already exist to exempt from tax the dividends or other distributions paid by a trust operated by a financial institution carrying on unit trust business and licensed under the Financial Institutions Act 1993 where the profits of the trust are exempt from corporation tax. This tax exemption proposal is likely to be captured by these provisions and therefore this is not a new incentive. Incentives for enhancing the Creative Industries o Effective January 1st 2013, it is proposed to introduce a 150% tax deduction up to a maximum of $3 million for the corporate sponsorship of nationals in the local fashion industry; for the corporate sponsorship of audio, visual or video productions for the purpose of local education or local entertainment; and 150% tax deduction up to a maximum of $3 million by local production companies in respect of their own productions.
KPMG - We await the details of the incentives before commenting. Incentives for the CLICO Investment Fund o Waive any applicable stamp duty on the transfer of the shares of Republic Bank Limited (RBL) from Colonial Life Insurance Company Limited (CLICO) to the Government of the Republic of T&T (GORTT) as well as on the transfer by GORTT of the RBL shares to CLICO Investment Fund (CIF); Waive any applicable stamp duty on the transfer of units in CIF by GORTT to bond holders after the expiration of the initial offer period. Amend the Income Tax Act and the Corporation Tax Act to expressly exempt from tax the dividends or other distributions paid to resident individuals and companies by the CIF as well as the profits accruing to the Trust under the CIF.
KPMG - The legislation already exist to provide for a 150% uplifted allowance for sponsorship of audio, visual or video production, however the current limit is $2 million inclusive of expenditure incurred on arts and culture and sporting activities. The inclusion of the local fashion industry is, however, new and so we await the legislation to set out the qualifying criteria which we hope would not be too burdensome so as to limit the qualifying expenditure and by extension not provide the incentive to sponsors. Production companies were already entitled to a 150% uplifted allowance but up to a maximum of $2 million. The increase of the allowance to a maximum of $3 million inclusive of the uplift merely represents the previous allowance of $2 million of expenditure incurred now uplifted by the 150%. Therefore there is no new incentive for additional sponsorship.
KPMG - The waiver of the stamp duty on the transfer of the RBL shares from CLICO to the GORTT in the 1st instant would have been a cost to the government as the purchaser of the shares and therefore is no direct incentive to the CLICO investors. As regards the exemption from income tax of the dividends/distributions paid by CIF to resident individuals and companies, provisions in
Fiscal Measure 2013 AX Measures2013
Fiscal Measure 2013

o
October 1, 2012 2 Crime and National Security o It is proposed to include the non-taxable special allowance now being paid to the members of the protective service to be extended to include the Special Reserve Police Officers. This would take effect from October 2, 2012.
It is proposed that during the fiscal year 2013, the Minister of Trade, Industry and Investment will collaborate with the Chamber of Commerce to establish the necessary Guarantee with the Comptroller of Customs and Excise in order to facilitate relief from customs duty under the carnet system, for persons in the creative industries. Also during fiscal year 2013, it is proposed to implement for persons in the creative industries, in particular the film industry, a regime to allow them to import into T&T equipment and film-specific goods duty free and the zero-rating of Value Added Tax on machinery and equipment.
KPMG - The question had arisen as to the omission of these reserve Police Officers in the first instant. o It is proposed that the purchase of CCTV cameras and digital video recording equipment for homeowners, community and business security will be exempt from custom duties and Value Added Tax.
KPMG - We await further details of these reliefs which would hopefully include details of the qualifying creative industries. Improving the Business Climate It is proposed: o to amend the relevant sections of the Exchequer and Audit Act in order for the Comptroller of Customs, as a Receiver of Revenue, to accept forms of payment other than cash and certified managers cheques; o to have proclaimed the Electronic Transactions Act 2011 in order to give legal effect to the use of electronic signatures and electronic transactions in T&T, including electronic signatures to be used in the submissions of goods declarations to the Comptroller of Customs and Excise; and o to amend the Customs Act, to allow advanced passenger and cargo information to be provided electronically to the Comptroller of Customs and Excise.
KPMG - A welcome initiative which may act as a deterrent to crime, however, reduction in the crime rate can only be achieved by the actual capturing, charging and convicting of criminals by law enforcement agencies.
Corporate Social Responsibility
As an encouragement to provide direct financial contributions to sporting activities, it is proposed to increase the maximum allowable deduction from $2 million dollars to $3 million commencing from the year of income 2013. KPMG - It is noted that the Minister did not mention an uplifted allowance for this sponsorship as is proposed for the fashion industry and sponsorship of audio/visual or video productions, as noted above. Nonetheless, given the recent success of our athletes it is hoped that companies would be inclined to take advantage of this and the mileage they may get and increase their sponsorship of our talented athletes.
KPMG - This is a most welcome initiative and will bring the Customs and Excise into the 21st century. The security of the systems implemented may be a worry for the importers for obvious reasons.

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Fiscal Measure 2013

Gaming Industry o Other Benefits
October 1, 2012
Effective October 1 2012, the Minister proposes to increase the taxes paid on gaming tables and other devices by private members clubs as follows: for every Baccarat Table/Device - $50,000 p.a. for every Black Jack Table/Device - $60,000 p.a. for every Caribbean Stud Poker Table/Device - $75,000 p.a. for every Dice Table/Device - $35,000 p.a. for every regular Poker Table/Device $30,000 p.a. for every Pool Table/Device - $2,000 p.a. for every Roulette Table/Device - $60,000 p.a. for every Rum 32 Table/Device - $75.000 p.a. for every Sip San Table/Device - $75,000 p.a. for every Slot Machine/Online Gaming Device - $12,000 p.a. for every other table or device not mentioned above - $30,000 p.a. It is proposed to bring the gaming industry under more effective control and capture more fully the revenue that can accrue to the Treasury by way of a comprehensive framework and an increase of the taxes levied on private members clubs from October 1, 2012.
It is proposed to increase all benefits other than the retirement pension by an overall 50%. From 2013 this increase will apply to the following grants maternity, special maternity, retirement grant, and funeral grants.
The other benefits listed below will increase by 25% from 2013 sickness, maternity allowance, invalidity, survivors and employment injury. It will appear that this is to be a two phased increase which will ultimately result in a cumulative increase of 50%. o Minimum Survivors Benefit
It is proposed that survivors benefits in respect of spouses, children, dependent parents and orphan children of a deceased contributor or an NIS pensioner be increased to a minimum of $600 and a maximum of $1,200.
KPMG - These increases in benefits will be

certainly welcomed especially by those who are solely dependent on NIS to get by. o Retirement Pension
National Insurance System o Maternity Benefits It is proposed to convert the old earning class system into a career average-indexed earning system.
It is proposed that with effect from May 22, 2012 the National Insurance Board will be given statutory authority to pay 14 weeks maternity allowance. This will be in accord with the increase in maternity leave from 13 weeks to 14 weeks under the Maternity Protection Act.
KPMG - We eagerly await details of this new system but assuming it involves a retirement pension being based on total contributions and earnings of the contributor over his/her entire working career will be most welcome and should remove the inequity that currently exist as the pension is fixed no matter what the total contribution may be.
Fiscal Measure 2013

o Contribution System o Employment Injury
October 1, 2012
It is proposed to increase the rate of contribution from 11.4% to 11.7% in 2013 and 12% in 2014 representing an increase of 0.1 % for employees and 0.2% for employers in 2013 and similar increases in 2014.
It is proposed that employers will be provided with a full range of employment injury benefits in order to reduce their burden in complying with both the Workmens Compensation Act and the National Insurance Act.
KPMG - This is not unexpected given the

proposed increase in benefits to be paid to contributors but we recognise the increased financial burden placed on employers. o Maximum Insurable Earnings
KPMG - All employers will welcome this initiative.

o Disability Assistance Grants
It is proposed to increase the maximum insurable earnings incrementally from $8,300 in 2012 to a maximum of $22,000 in 2020.
It is proposed to increase the disability assistance grant by $200 per month to $1,500 per month. While a child with medically certified disabilities the grant will increase from $800 to $1,000 per month. This increase is to take effect from February 1, 2013.
KPMG - It is assumed that with these increases

the annual contribution will also increase. o Self Employed Persons
KPMG - While we are certain those in need would

be grateful for the increases we are not sure the amount is sufficient to really assist in any meaningful way. 6 (a) Housing Development
It is proposed that self employed persons will be allowed to make contributions to the National Insurance System and consequently have access to retirement benefits from as early as age 60.
KPMG - This will certainly be beneficial to selfemployed persons as far too often they make no provisions for their own retirement and as they are not allowed to contribute to the national insurance systems they are left financially burdened in their twilight years. o Voluntary Retirement Pension
In order to stimulate the construction sector and alleviate the needs for housing stock, it is proposed to exempt from tax the gains or profits derived from the initial sale of newly constructed houses of the class specified in section 43 of the Income Tax Act by a registered trader of such houses. The exemptions will apply to the cost of construction of a house, exclusive of the cost of the land, not to exceed the maximum upper limit of $1,500,000 and provided construction commenced after October 1, 2012. This exemption will be effective for three years beginning with the date of the passage of the required legislation.
It is proposed that all working persons as well as self-employed will be given the opportunity to provide additional retirement income to supplement their NIS benefits. This will be done by virtue of a separate plan and will involve an investment instrument at competitive rates.
KPMG - We eagerly await further information on this initiative as it promises to be financially attractive particularly to middle and high income earners. 2012 KPMG, a Trinidad and Tobago partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Trinidad and Tobago.
Fiscal Measure 2013

(b) Land Development
October 1, 2012
KPMG - The government should be commended

It is proposed to exempt from tax gains or profits derived from the initial sale of land developed for residential housing where the development of such lands commences after October 1, 2012 and the sale is consummated prior to December 31, 2015 for attempting to spur further investment in the energy sector especially now where there is fierce competition from other countries in the region and even Africa for foreign direct investment. 9 Reduction of the Fuel Subsidy
KPMG - These are most welcome initiatives and it

is hoped that property developers will take advantage of them. It is also hoped that these measures will ultimately reduce the cost of owning a house and land. 7 Import Duty on Tyres It is proposed that the price for premium gasoline be increased from $4.00 to $5.75 per litre from October 2, 2012.
It is proposed to impose duty at the rate of 30% on used tyres in keeping with the duty rate currently imposed on new tyres.
KPMG - This is not unexpected as one readily accepts that there is need to reduce the gas subsidy and it is reasonable to start the reduction with premium gasoline which is used by higher end motor vehicles.
10 Drivers Permits
KPMG - This seems only fair but one expects loud objections from those in the foreign used business.
8 Energy Sector
It is proposed to have one SPT rate for marine areas set at 33% for prices ranging from US$50/bblUS$90/bbl. Above US$90bbl the rate will be based on the formula currently used for land and marine. introduce a special SPT rate of 25% for approved new field developments, at prices above US$50 and up to US$90/bbl. For prices above US$90/bbl and up to US$200/bbl, the SPT formula as currently exists will be applicable. It is hoped that this special SPT rate will spur development of inactive fields, not yet in production.
It is proposed that with effect from November 1, 2012, the first issue of a drivers permit will be valid for 5 years and thereafter upon renewal the validity would be for a duration of either 5 years or 10 years at the option of the holder of the drivers permit. The fee for the first issue of the drivers permit will remain at $500 and the fee for the 5 year and 10 year renewal periods would be $500 and $1,000 respectively.
KPMG - This is a most welcome initiative.

11 Licensing Department It is proposed that with effect from October 2, 2012, the fee provisions under the Motor Vehicles and Road Traffic Act would be streamlined to improve the administration of the Licensing Department. Further motor cycles, school buses and omnibuses will be brought within the tax net.
KPMG - Any initiate to streamline the fees should
result in greater efficiency but we defer further Introduce an uplift of 40%, for a period of five comments until specific details are provided. years, on exploration cost (excluding exploration dry holes) incurred in undertaking approved projects in deeper horizons. 2012 KPMG, a Trinidad and Tobago partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Trinidad and Tobago.
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Fiscal Measure 2013
October 1, 2012
12 Business Levy Threshold It is proposed that from January 1, 2013 to increase the threshold for the applicability for Business Levy from $200,000 to $360,000.
KPMG - This is a most welcome initiative, which

should not only ease the unemployment rate but also have the effect of reducing social programmes as the employees are moved into main stream private sector employment. 14 Construction of Commercial Buildings It is proposed to exempt from corporation tax for a period of five years, profits earned in the construction and rental of commercial buildings to be constructed within the next five years, such buildings to include multi-storeyed car parks. KPMG - It is hoped that this measure among others will revive the construction sector and provide an impetus for economic growth again.
KPMG - This is not unexpected given the rate of

inflation over the years.
13 Transfer of CEPEP and URP Employees to the Private Sector It is proposed to provide a company which elects to employ CEPEP and URP employees with an employment allowance uplift of salary of 150% as a tax deduction.
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Fiscal KPMG AX Measure 2013
Fiscal Measure 2013

Advisory
October 1, 2012
History of KPMG KPMG was formed in 1987 with the merger of Peat Marwick International (PMI) and Klynveld Main Goerdeler (KMG) and their individual member firms. Spanning three centuries, the organization's history can be traced through the names of its principal founding members - whose initials form the name "KPMG." KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We have 145,000 outstanding professionals working together to deliver value in 152 countries worldwide. KPMG in Trinidad and Tobago KPMG in Trinidad and Tobago is locally owned and operated, and is a member of the global network of professional service firms whose aim is to turn knowledge into value for the benefit of our clients, our people and the capital markets.
KPMGs Advisory practice is designed to help clients manage risk; improve performance and create value so they can focus on their core businesses. Advisory professionals combine industry knowledge with technology experience in the areas of Management Consulting, Risk Consulting and Transaction & Restructuring.
KPMG in Trinidad and Tobago quick facts Legal Name : Location : KPMG Head Office Trinre Building 69 - 71 Edward Street Port of Spain Trinidad and Tobago, WI Tel : 1-868-623-1081 Fax : 1-868-623-1084 Advisory Department 2nd Floor Albion Court 61 Dundonald Street Port of Spain Trinidad and Tobago, WI Tel : 1-868-623-1081 ext 4610 Fax : 1-868-623-7995 Partners :
Principal areas of business Audit KPMGs Audit practice assists clients in providing credibility and transparency in financial reporting by delivering quality, independent audit reports to clients in the banking & financial services; energy sector; manufacturers; public sector and large retail companies. Tax KPMG's Tax practice assists clients in tax advisory and compliance through all sectors.
Robert Alleyne Managing Partner Christopher Hornby Partner, Audit and Tax Services Stacy-Ann Golding Partner, Audit Dushyant Sookram Partner, Audit and Advisory
Staff Count :
80
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TAX
CONTACT US
Robert Alleyne Managing Partner T (868) 623 1081 ext 4113 E ralleyne@kpmg.co.tt Chris Hornby Partner Audit and Tax T (868) 623 1081 ext 4112 E cshornby@kpmg.co.tt
Gillian Wolffe-ONeil Director, Tax T (868) 623 1081 ext 4246 E gwolffeoneil@kpmg.co.tt
Nicole Joseph Senior Manager, Tax T (868) 623 1081 ext 4247 E nicolejoseph@kpmg.co.tt
Randy Beddoe Staff Accountant, Tax T (868) 623 1081 ext 4122 E rbeddoe@kpmg.co.tt
http://www.kpmg.co.tt
We can help
KPMG can help you assess the effect of the proposed tax changes in this years budget and point out ways to take advantage of their benefits or lessen their impact. We will keep you abreast of the progress of these proposals as they make their way into law.
Caveat
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2012 KPMG, a Trinidad and Tobago partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Trinidad and Tobago. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (KPMG International), a Swiss entity.
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TAX

KPMG in Trinidad & Tobago Budget 2013

$50.736 b $20.038 b $30.698 b

Fiscal Measures 2013

It is proposed to introduce legislation associated tax incentives early in FY13.

Fiscal Measure 2013 AX Measures2013

Fiscal Measure 2013

Corporate Social Responsibility

Fiscal Measure 2013 AX Measures2013

Fiscal Measure 2013

KPMG - These increases in benefits will be

Fiscal Measure 2013 AX Measures2013

Fiscal Measure 2013

KPMG - This is not unexpected given the

KPMG - All employers will welcome this initiative.

KPMG - It is assumed that with these increases

KPMG - While we are certain those in need would

Fiscal Measure 2013 AX Measures2013

Fiscal Measure 2013

KPMG - The government should be commended

KPMG - These are most welcome initiatives and it

KPMG - This is a most welcome initiative.

KPMG - Any initiate to streamline the fees should

Fiscal Measure 2013 AX Measures2013

Fiscal Measure 2013

KPMG - This is a most welcome initiative, which

KPMG - This is not unexpected given the rate of

Fiscal KPMG AX Measure 2013

Fiscal Measure 2013

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