Britain agrees not to implement the controversial Valued Added Tax in the Turks and Caicos Islands. Photo:caribbean360

The letter, dated February 25 and signed by both Mark Simmonds, the United Kingdom’s Minister for Overseas Territories and the Caribbean and Alan Duncan, Minister of State for the Department for International Development (DFID), stated: "We (UK Government) accept TCIG's proposal not to implement VAT on April 1st...The Governor (Ric Todd) will not give his assent to the Private Member's Bill to repeal VAT, but I will instruct the Governor not to sign the Commencement Notice which would have brought in VAT on April 1, 2013. As the signing of this notice is what would have been required to introduce VAT, there is no need for further legislative action."

This letter responded to one sent by Premier Ewing, dated January 29, which set out clearly the PNP administration’s arguments against VAT implementation. 

The British officials wrote to Ewing: "The Fiscal and Strategic Policy Statement (FSPS) you supplied with your letter is revised in line with your proposed spending reductions. The revised FSPS must show credible surpluses. It must be fully adjusted to reflect the decision not to introduce VAT, the uncertainty about alternative revenue streams and the weakening outlook for some existing revenue streams set out in the third quarter fiscal forecasts. The FSPS should be signed off by the Chief Financial Officer, as provided for under legislation, before being re-sent to London for final approval. TCIG will need to bear in mind that an approved FSPS is required before its budget can be agreed for 2013/2014 so there is some urgency".

However, Simmonds and Duncan still cautioned that VAT would have provided a "fairer, broader and more stable revenue stream" and that without this, the burden of taxation will "fall on a smaller number of businesses and households".

They advised the government to take steps to constrain expenditure within the legal binding fiscal framework which is now in place, and to take further steps to build the country’s credibility with the international financial markets so that it would be in a position to refinance without a UK loan guarantee after 2016.