An Impact Assessment of Montserrat's Tax Regime on Investment Promotion and Doing Business

16 January 2014

 

Upper Quartile has recently undertaken a review and impact assessment of the tax regime on investment promotion and doing business on the Caribbean island of Montserrat. 

 

This British overseas territory was devastated by overwhelming volcanic eruptions from the 1990s up to 2010, which destroyed much of the local economy and infrastructure. About two-thirds of national territory was covered in lava and ash, including the capital town Plymouth. As the population fell from 12,000 to less than 5,000, Montserrat’s tax base was eroded by about 45%. 

 

Although there has been steady progress in recovery since then, tax revenue remains well below its peak level.  This is reflected in government finances – despite ambitious taxation targets, the island remains heavily dependent upon grant-in-aid from the UK government.

 

Dr Ken MacTaggart of Upper Quartile visited Montserrat and reviewed the economic background and existing tax system of the island, while also making a comparison with the tax systems of seven other East Caribbean states. Some significant differences were noted on importation taxes, the application of VAT and income tax arrangements.  

 

Regarding inward investment, taxation exemptions are available to companies undertaking investment in Montserrat and these are important part of the island’s development strategy.  Incentives available to foreign firms wishing to establish on the island are broadly in line with other states of the region. 

 

These fiscal incentives are already working, and can be related to the creation of around 200 jobs to date.  However, future progress will also depend on economic issues beyond tax incentives – including better infrastructure and an educated work force, as well as maintaining existing advantages such as stable politics and a sound legal system.

 

The study offered a number of suggestions for consideration and further discussion. For instance, income tax bands should be simplified, records systems modernised and communications between the tax authorities and tax payers could be improved, for mutual benefit.

 

For more information contact Ken MacTaggart, .